Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move:

That:Dáil Éireann welcomes the restructuring of the promissory notes provided for the IBRC, based on the outcome of discussions with the European Central Bank;

— recognises the benefit of the restructured arrangement for the State and its citizens, particularly:

— the removal of the promissory notes which will be exchanged for long-term Government bonds, with an average maturity of 34 to 35 years, as opposed to the

promissory notes' seven to eight year average maturity;

— the reduction in the State's general Government deficit of approximately €1 billion, 0.6% of GDP, per annum over the coming years, which will bring us €1 billion

closer to attaining our 3% deficit target by 2015;

— the reduction in the State's cash borrowing requirement over the next ten years by €20 billion;

— the significant element of the interest payments on the Government bonds that is expected ultimately to be returned to the Exchequer in the form of Central Bank dividends, while these bonds are retained by the Central Bank;

— the substantial improvement in the State's debt position over time;

— the removal of the remnants of the former Anglo Irish Bank and Irish Nationwide Building Society from the Irish financial system;

— the housing of all "wind down assets" in one entity, the National Asset Management Agency, which should lead to greater efficiency in their workout;

— commends the Government for progressing the commitment "to secure a Programme of Support and solution to the banking crisis that is perceived as more affordable by both the Irish public and international markets, thereby restoring confidence, growth, job creation and the State's access to affordable credit from private lenders"; and

— supports the Government's continuing efforts to foster economic growth and job creation which, in tandem with ongoing discussions on the extended remit of the European Stability Mechanism, will further improve the State's debt sustainability.

The elimination of the promissory notes last week meant it was a good week for the country. As a people, we can look forward once again with positive expectations. The promissory notes in Anglo Irish Bank and Irish Nationwide Building Society served as a millstone around the neck of the taxpayer.

This burden has eroded confidence and limited the economy's ability to grow. The Government has succeeded in alleviating this burden. It places the State in a position where the debt is more manageable and the State is provided with the space and time to recover and grow.

I note that every respected economic and political analyst has recognised that last week's agreement was the best possible outcome for Ireland. This shows what we can achieve as a country and a Government when we work together towards a common objective. We have rid Ireland of the annual 31 March promissory note repayment. We have reduced the State's cash borrowing requirement by €20 billion in the next ten years. We have brought the State €1 billion closer to meeting its deficit targets and consigned Anglo Irish Bank and Irish Nationwide Building Society to history.

I recognise that some on the Opposition benches have acknowledged the significant benefits of last week's deal for the country. It is a shame that others seem to be incapable of recognising positive developments for fear it may impact on their electoral strategy of negativity. It is truly appalling to devise a strategy of winning seats on the basis of hoping for the worst outcome for one's country.

I have heard Sinn Féin's criticism that the Government did not demand a repudiation of the promissory notes. However, as Sinn Féin knows from its experience during the Good Friday Agreement negotiations, it is pointless sticking rigidly to a position that will prevent an agreement which is in everyone's interests. Sinn Féin knows this full well, as it showed through its negotiating realism in not demanding a united Ireland as a precondition in the Good Friday Agreement talks. This is yet another example of how it talks very differently on this side of the Border from what it does in the North.

There are some in this House who seem to be determined to follow the policy of default, no matter what the consequences for those most reliant on the State. The reality is that the promissory notes have been part of the general Government debt since they were issued in March 2010. They can be seen in all national and European statistical releases since; therefore, a non-payment would have been a default. Like many others, I have detailed the dire consequences for all citizens of such a policy of default and I do not propose to repeat them yet again.

It is worthwhile revisiting the origins of the promissory notes. The concept of the promissory note was born out of the need to provide Irish Bank Resolution Corporation Limited, IBRC, and other institutions with sufficient capital. To minimise the impact this would have had on Exchequer borrowing, a promissory note was issued to the IBRC instead of Government bonds. The promissory notes were, by their nature and structure, unsatisfactory. From the State's perspective, the high interest rate and the amortising repayment schedule placed a considerable burden on the State's resources, particularly at a time when the current deficit had to be addressed. In addition, they required fortnightly approval for collateral purposes from the Central Bank and the European Central Bank, ECB, thus creating a long-term structural liquidity issue for the banking sector as a whole. From both the Central Bank's and the ECB's viewpoint, the use of exceptional liquidity assistance for long-term funding was also problematic. Exceptional liquidity assistance was only ever intended to be a temporary funding arrangement.

There is little to be achieved in revisiting the decisions taken by the previous Government in regard to the banking crisis. Suffice it to say that on coming into office, the Government inherited an extremely complex and piecemeal solution. The programme for Government clearly set out that our overall aim of renegotiation had to be to secure a programme of support that would be perceived as more affordable by both the public and international markets. There has been significant renegotiation of the programme of assistance which has meant real economic improvements and real savings for citizens. These include reinstatement of the minimum wage; renegotiation of many of the conditions of the programme; a reduction in the interest rates on EU funds, which will save the taxpayer approximately €10 billion; retention of half of the proceeds from State asset sales for investment in job creation projects; the 29 June agreement on breaking the vicious circle between banks and the State and the specific reference to improving the sustainability of the programme; and 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.

The Government has taken considerable steps to stabilise and restructure the banking sector. In spite of calls on the Government to adopt an aggressive approach in negotiations with our external partners, it recognised from an early stage that a comprehensive sustainable solution to our problems, including our banking problems, had to be addressed in the context of an overall eurozone solution. We have worked hard to rebuild Ireland's reputation in Europe and build momentum behind proposals that are in the interests of Ireland and the European Union as a whole. It was clear to the Government that the co-operation and support of our European and international partners was essential to reaching a solution that was in the interests of all. The Government had always set out clearly that it would not act unilaterally and that it would be bound by agreements entered into by this and previous Governments. If Ireland is to remain attractive to investors, the State must abide by sovereign commitments, no matter which Government made them. Our strategy has and is paying real dividends. The recent announcement on the promissory notes is a major step in regaining our economic independence through improving the affordability of our debt position and reducing our debt servicing costs.

We have been seeking and will continue to seek a comprehensive solution to the remaining structural and funding issues in the banking sector. Our discussions always had two distinct but related elements - first, the structural funding issue in the banking system, particularly the exceptional liquidity assistance in the IBRC, which has now been resolved; and, second, the matter of investments in the going concern banks, including AIB, Bank of Ireland and Permanent TSB.

In recent months it had become evident that the complexity of issues around the establishment of the European single supervisory mechanism would impact on the timeframe for achieving a comprehensive solution. It was decided, in this context, to progress the situation with the promissory notes as an initial step and seek an adjustment of the terms underpinning the punitive promissory notes arrangements. Notwithstanding this, we will continue to participate in the development of the ESM, European Stability Mechanism, and the structuring of the single supervisory mechanism to ensure Ireland will benefit, on similar terms to other member states, from developments in this regard.

As stated, the revised arrangement represents a major step forward in the restructuring of the banking sector, strengthening the position of the Central Bank and reducing our borrowing requirement and debt servicing costs. These benefits, when coupled with making the necessary adjustments in line with our commitments under the programme of financial assistance, will serve to enhance Ireland's reputation, reduce our risk profile and increase our prospects of re-entering the financial markets. This decision re-establishes long-term stability for a large part of the banking system for the first time since the start of the banking crisis. The exceptional liquidity assistance which was provided for the IBRC and is inherently short term, costly and unstable is removed. It is clear that all parties to the current arrangements had something to gain from the discussions and an agreed approach to the resolution of this issue. The key objective of any new arrangement was to make the banking related debt more sustainable. This remains central to the Irish position in all negotiations with our European partners. The improved debt sustainability of the new arrangement is testament to the efforts and focus of the Irish parties in this matter and the benefits of the constructive and consensual approach taken with our European partners.

The €3.1 billion repayment due on 31 March each year served as a constant reminder of the devastating impact Anglo Irish Bank and Irish Nationwide Building Society had on the economy. The passing by the Oireachtas of last week's Act means that the IBRC, the former Anglo Irish Bank and Irish Nationwide Building Society, will be removed from the financial landscape. The IBRC promissory notes, of which the Central Bank has assumed full economic and legal ownership, will be exchanged for a portfolio of long-dated Government bonds with a maturity of up to 40 years. Over half of all the banking related debt will be pushed out over 40 years and its burden on the economy will be significantly lightened.

The principal benefit of this arrangement is that the promissory notes are gone. They will be exchanged for long-term Government bonds with an average maturity of 34 to 35 years as opposed to the seven to eight year average maturity of the promissory notes. The maturity of the bonds will have significant benefits from a market perspective, as it ensures the liability to repay is beyond most credit investors' time horizon.

There will be a reduction in the State's general Government deficit of approximately €1 billion or 0.6% of GDP per annum in the coming years, which will bring us €1 billion closer to attaining our 3% deficit target by 2015. This means the expenditure reduction and tax increases will be of the order of €1 billion less. A significant element of the interest payments on the Government bonds, which will now be held by the Central Bank of Ireland, will ultimately be returned to the Exchequer in the form of Central Bank dividends. The State will borrow €20 billion less in cash during the next ten years due to the cashflow benefits of this arrangement. Next year the cashflow benefit will be €2.3 billion, excluding initial transaction costs. The arrangement will lead to a substantial improvement in the State's debt position over time.

The housing of all the wind-down assets in one entity, NAMA, will result in one wind-down vehicle. The substantial benefits of this arrangement flow from the exchange of the promissory notes for far more efficient financing from the State's perspective. In real terms the benefits are considerable when compared with the existing costs associated with the promissory notes. A simple analogy for the restructuring arrangement is that of a household rearranging the payments in respect of the purchase of the house from a short-term loan to a long-term mortgage.

The decisions announced during the past week involved certain key steps. The first was the liquidation of IBRC by way of legislation. The liquidation caused the Central Bank of Ireland to assume full economic and legal ownership of the promissory notes and all other collateral held as security for funds provided by the Central Bank under various liquidity arrangements. Having been assumed by the Central Bank, the promissory notes were exchanged for long-term bonds with maturities of up to 40 years. The promissory notes are now terminated. The Government bonds were issued on Friday last and they will pay interest every six months based on the six-month EURIBOR interest rate, which stood at 0.369% today, plus an interest margin, which averages 2.63% across the eight issues. This interest rate is certainly at the better end of the expectations we held last week. Deputies will recall that when I presented the legislation I said that the interest rate would be between 3% and 3.5% on average, but it is coming in at somewhere under 3% now. It is significantly better than we had estimated before we got into negotiation with the European Central Bank on the interest rate.

All remaining debt of IBRC to the Central Bank, which is secured by a floating charge over the assets of IBRC, has been acquired by NAMA from the Central Bank in return for NAMA bonds. My Department's website has a detailed presentation and additional information on this arrangement. I have attached the schedule of the issued bonds in an appendix to my statement for the information of Deputies.

I note that in recent days there has been media speculation on a supposed fire sale of the assets of IBRC. I can provide the House with some comfort in this regard. Put simply, this will not happen. It is part of the role of the liquidators to ensure that the assets of IBRC will be valued independently before being sold. Any assets not sold to third parties at or above the valuation price will be sold to NAMA at the independent valuation price. This ensures a floor price on the assets of IBRC and that, where required, assets with limited sale potential can be worked through in the medium term by NAMA rather than sold to the best available third party at any price. The Government's approach is consistent and focused on the best outcome for the State and the people.

The success of our programme implementation to date has been recognised by the financial markets. Our ten-year bond yields have remained below 6% for several months now and have been under 5% since late last year, while the NTMA has commenced a programme of debt issuance in recent months. Furthermore, markets have reacted positively to last week's announcement and bonds have been trading at levels not seen since the programme of assistance, a position to be widely welcomed. In addition, Bank of Ireland and Allied Irish Banks have successfully re-engaged with the markets on the back of their asset-covered securities. These are all positive indications and the developments of last week serve to further improve sentiment. At close of business this evening, our 2020 bond was trading at 3.66% and our five-year bond was trading at 2.68% on the secondary markets. These are extraordinarily low figures by any comparison. It would have been difficult to match interest rates at those levels when we were a AAA-rated country and when the economy was supposed to be booming. Clearly, the deal on the promissory notes, which I had thought to be substantially priced into the market, was not priced into the market and there has been a significant movement on interest rates since the arrangement was announced.

A significant improvement in cost competitiveness has provided a much-needed boost to our export sector. We are introducing fiscal reforms to improve the management and control of our public finances. A stabilisation in the level of unemployment and positive expectations regarding employment growth have been experienced recently. There have been increased activity levels in the commercial property markets, especially among overseas investors. Residential property prices have stabilised and there has been an uptick in the volume of mortgage approvals. Above all, the renewed confidence in Ireland has been reflected in the significantly lower yields on Irish sovereign bonds.

These collective actions represent a major improvement in Ireland's position. We have demonstrated once again in respect of the promissory notes the value of what can be gained from a carefully managed and sustained engagement - that is to say, the maximum benefit for Ireland. The Government and the people are determined to recover our economic independence, our pride and our self-belief and to create a present and a future free from the excesses of the past and the burdens placed by the few on the citizens of the country.

I wish to acknowledge on the record of the House the extensive work done in bringing these discussions to a successful conclusion by the Governor of the Central Bank, Patrick Honohan, his officials, my officials, led by the Secretary General, John Moran, and the head of banking, Ann Nolan, the NTMA, and our diplomats, under the guidance of the Tánaiste. The commitment of these officials to making the country a better place for all citizens cannot be questioned and it is right to acknowledge their months of long, hard work. I commend the motion to the House.

See this speech in context