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

I move amendment No. 4:

To delete all words after “Dáil Éireann” and substitute the following:"recognises that the replacement of the promissory notes provided to the Irish Bank Resolution Corporation (IBRC) with long-term Government bonds announced by an Taoiseach on Thursday, 7th February, 2013 provides important benefits to the State including:

— a reduction in the general Government deficit of approximately €1 billion per annum over the coming years and will bring the State approximately €1 billion closer to attaining the 3% general Government deficit target by 2015; and

— a reduction in the State’s cash borrowing requirement over the next 10 years by €20 billion by virtue of paying interest only on Government bonds rather than capital and interest on the promissory notes;

— acknowledges the considerable efforts made in recent months by those who negotiated on Ireland’s behalf including the Minister for Finance, the Governor of the Central Bank and officials from the Department of Finance and the National Treasury Management Agency;

— calls on the Government to use the €1 billion gain on the general Government deficit to ease the planned budget adjustments and to invest further in job creation measures without compromising the achievement of the 3% deficit target by 2015;

— notes that the Government has not sought or received any write down whatsoever of the legacy debt associated with the rescue of the former Anglo Irish Bank and Irish Nationwide Building Society;

— notes that the Euro Area Summit Statement of 29th June, 2012 reaffirming the imperative need to ‘break the vicious circle between the banks and the sovereigns’ has not been implemented in this case;

— notes that the conversion of the promissory notes to long-term Government bonds means that there will be no further easement of this debt as a result of evolving European policy;

— believes that the Central Bank should be permitted to retain the Government bonds for longer than the period agreed which would yield additional savings to the State;

— calls on the Government to publish a detailed analysis of the full impact of the deal on Ireland's debt and deficit figures over the full course of the deal including, for example, sensitivity analysis for varying interest rates on the Government bonds and possible payments to the National Asset Management Agency to cover any shortfall (should one arise) following the sale of IBRC assets by the Special Liquidator; and

— believes that the justice of Ireland's case deserves further relief from the impact of bank-related debt and, in particular, that the Government should be seeking to have the cost of bailing out AIB, Bank of Ireland and Permanent TSB lifted from the shoulders of the State through the European Stability Mechanism."

Last week Fianna Fáil voted to support the emergency Bill to liquidate IBRC and move its assets to NAMA. At the time I expressed our dissatisfaction with the manner in which the legislation was rushed through the House and the lack of accompanying information. I cannot say that subsequent events have convinced me the Government had no choice but to act in the manner it did but that is history now. We stated at the time that we have no objection in principle to the winding up of IBRC if it results in a lower overall cost to the State. We accepted in good faith the Minister for Finance's contention that not to do so would put up to €15 billion of State owned assets at risk and voted accordingly, even though he stated repeatedly in response to parliamentary questions over the past several months that he had no plans to merge IBRC and NAMA. Since the emergency legislation was passed last week, it has been announced that the revised arrangements for the promissory notes involve substituting eight long-term Government bonds. On the whole, the deal is positive for Ireland, brings undoubted benefits and will help our recovery. I pay tribute to the work of both the Minister for Finance and the Governor of the Central Bank, Professor Patrick Honohan, as well as their respective officials and the officials from the NTMA. All concerned clearly have the interests of the Irish people at heart and they deserve to be commended on their efforts. I know the task involved a lot of late nights and difficult negotiations and, on behalf of Fianna Fáil, I have no difficulty acknowledging the work that has been done.

The conclusion of the deal is a recognition that Ireland has a moral and practical case for alleviating the burden of rescuing our banks. Everyone accepts that a complex arrangement has been replaced with a similarly if not more complex arrangement. The promissory note inherited by this Government was certainly complex but it was also widely misunderstood. The best analysis I have seen of the structure was written by an economist, Conall Mac Coille, in an article in The Sunday Business Posttwo weeks ago. The article explained very clearly the net costs of the arrangement to the State. The net cost of the interest was the ECB refinancing rate of 0.75%. The 2% margin paid by IBRC to the Central Bank returned to the State by way of redistribution of the Central Bank's surplus and the balance of the interest rate would partially come back in the event of IBRC having a surplus after realising its losses. The key issue with the promissory note was that it involved large payments up front. Interest and capital charges meant an annual payment of €3.1 billion between now and 2023. The Government has replaced those arrangements with a series of long-term Government bonds.

While today's debate is important, the Dáil is not necessarily the best forum for exploring the detailed and technical issues that flow from the agreement. The Minister referred to the material posted to the Department of Finance website. We have studied that material and have also submitted a number of parliamentary questions on technical aspects of the arrangements. These questions will be answered later in the week. I intend to suggest in writing to the Acting Chairman, Deputy Ciarán Lynch, in his capacity as Chairman of the Joint Committee on Finance, Public Expenditure and Reform, that we invite the Minister and the Governor of the Central Bank before the committee at an early date to discuss the details of the arrangements.

The debate needs to broaden out to discuss the implications of the arrangement for the citizens of the State. I have stated repeatedly that it is important ordinary people see a dividend in terms of practical measures that will boost their disposable incomes and support job creation. To date the public have displayed a remarkable level of resilience in the face of extremely painful measures. There is a need to recognise this by moderating forthcoming tax increases and expenditure cuts in light of the interest savings the deal will generate. Unlike Greece and Spain we have not seen large scale strikes and public protest has been peaceful thus far. I do not expect the Minister to say the €3.1 billion adjustment planned for budget 2014 has now become €2.1 billion because of this deal. I am aware the matter is not that simple and, in arriving at the adjustment for 2014, a series of moving parts must be managed. It will only be towards the end of the period of preparing the budget for next year that he will be able to come to a conclusion as to the appropriate level of adjustment. Those moving parts include the level of economic growth that will be achieved in 2013, Exchequer receipts under various tax headings and the adherence of Departments to their spending profiles. However, the Minister can give a clear signal that, other things being equal, he intends to reduce the budget adjustment imposed over the coming years. If I interpret correctly what he has said in regard to the benefits of this arrangement, there will be a saving of €1 billion on the general government deficit and expenditure reductions and tax increases will be of the order of €1 billion less. I take it he intends the €1 billion we have saved between now and 2015 by way of budget decisions.

More than €28 billion in tax rises and expenditure cuts have been imposed since the correction started in 2008. This has resulted in a considerable reduction in living standards for citizens. This summer carers will get €350 less in the respite grants. Struggling parents have seen €10 per month cut from their child benefit payments. Property tax assessments will start dropping through letter boxes over the next few weeks. This is the reality for families far removed from negotiations in Frankfurt. I note from the briefing provided by the Department of Finance that on a pro formabasis the projected deficit in 2015 is now 2.4% of GDP. On that basis I imagine we will be running a primary surplus some time during the course of 2014. If that happens, it will represent a considerable achievement earned through the sacrifices of ordinary people since the first package of fiscal consolidation measures was introduced in July 2008 by the late Brian Lenihan. My party fully recognises the importance of reaching a deficit of not greater than 3% by 2015. However, given the headroom that now appears to exist in reaching the 3% target, there is limited scope to take action that would be of benefit in terms of stimulating the economy. We should not have needed the troika to remind us that unemployment remains stubbornly high and is increasingly long-term in nature. Reducing it must remain an urgent policy priority. The most recent employment statistics revealed a third consecutive quarterly fall in employment. The male jobless rate stood at 17.8% in 2012, while 11% of the female labour force was unemployed. Worryingly, the long-term unemployment rate increased from 8.8% to 8.9% over the year, accounting for 59.5% of total unemployment by the end of quarter three of 2012. This is a frightening development which requires urgent action from this House and from the Government.

Last summer the Government announced a stimulus plan with much fanfare but little has happened since then. The Government continues to cut the capital budget to ribbons. Capital spending in 2012 came in €150 million below target. In January of this year capital spending was an extraordinary 50% below the same month last year. This is costing jobs at local level throughout the country.

It would represent a real and tangible benefit to people if the Government was to announce that it was now freeing up resources to reverse the cut to the capital budget.

A multiple of practical job-supporting measures that could be undertaken in a relatively short period of time would have a real impact. For example, the cuts introduced last year to home insulation grants were short-sighted and counterproductive. The Minister should consider reversing these immediately. In addition, we should look to improving the package of supports for SMEs, which are the lifeblood of our economy. Yesterday's report from the Credit Review Office should be a long overdue wake-up call for the Government that of the total of €8 billion in lending advanced by the pillar banks, only an estimated €2.5 billion was deemed new lending, with the balance providing for the roll-over of loans over that period of time. The economic reality is that as a country we have made progress, but we are far from out of the woods.

To return to the deal announced last week, I have a number of outstanding questions, but I will raise only a few of them tonight. Above all, is the deal that has been reached legally watertight? Is there potential for a successful legal challenge in any other EU member state based on the treaties governing the operation of monetary union? This is a concern we hope never materialises, but we must be cognisant of it. Would a fire sale of the assets by the IBRC liquidator, which the Minister has assured us will not happen, result in the State missing out on a recovery in asset prices in subsequent years?

As recently as last September, the Minister for Finance stated that at that time he did not see any benefit to amalgamating NAMA and the IBRC. Will there be a need to revise corporate governance oversight processes for NAMA in light of its increased portfolio of assets? Given that NAMA will now take on a potential additional €15 billion in loan assets, this will be a major test of its capacity to deliver on its mandate. As I have said on the record several times, the transparency and governance arrangements in NAMA need to be reviewed and improved. The transfer of assets on this scale to NAMA now should provide an incentive to the Government to face up to that issue and to review those arrangements.

What impact would rising interest rates have on the savings under the deal? The Minister pointed out in his speech that the interest rate is now just a smidgen under 3%, which is welcome. Under what circumstances would the Irish Central Bank be permitted to exchange a portion of the new floating rate bonds issued for fixed coupon bonds? What implication will the liquidation of IBRC have on outstanding legal actions against the institution? Will the Minister make a statement on this issue?

I wish to raise the issue of the length of time the Central Bank will be allowed to hold onto these bonds. This is a critical issue because, for as long as it is allowed to hold them, the interest rate paid by the Government will essentially come back to the State by way of the Central Bank surplus in the following year. I note the schedule agreed with the ECB for the disposal of bonds by the Central Bank provides for a minimum of bonds to be disposed of over the period 2014 to 2024 and beyond. Is it within the power of the ECB to change that schedule? It refers to a minimum disposal level and our concern is that the ECB will come back to this and seek to increase the level of disposals in which our Central Bank must engage in respect of these bonds. It would reduce the benefits to the State if the ECB were to do this.

In the pro formatransaction impact analysis the Department has prepared, in calculating the benefits on the deficit and debt side, it has factored in a State financing cost of 5%. Therefore, it is saying that instead of paying out €3.1 billion this year and next year, we will pay out in the region of up to €1 billion at times, and the Department, assuming we will be paying 5% on the difference, calculates the saving. The Minister read into the record the bond yields that apply today in respect of the cost of borrowing for this State, and they are considerably lower than they have been. However, I submit that if we are borrowing at 5%, we are in trouble. I would like to point out for the record that factoring in a 5% State financing rate inflates the saving somewhat.

The final issue I want to address relates to the second tranche of work in which the Minister is and has been engaged for some time. This work relates to the European Stability Mechanism, ESM, and revisiting the cost to Ireland of bailing out AIB, Bank of Ireland and Permanent TSB. As the Minister knows, between these three institutions, the State has put in up to €30 billion. This money has already been paid over. In respect of Anglo Irish Bank and Irish Nationwide, the promissory note arrangement was put in place but the cash was not paid over. However, cash was paid over in respect of the three institutions mentioned. As the Minister also knows, the National Pensions Reserve Fund currently puts an estimated value on those holdings by the State of somewhere between €8 billion and €9 billion. The State would need to get a return far better than €9 billion for it to be in our interest to dispose of our shareholdings in these banks to the ESM, which has no competence nor track record in running banks throughout Europe. I am aware that the advancement of these negotiations is now very much linked to the roll-out of the banking union and the various milestones that need to be achieved in respect of that. However, getting a really good deal in respect of the ESM relieving Ireland of the burden of bailing out AIB, Bank of Ireland and Permanent TSB could result in a substantial reduction in debt levels for this State, something which has not been achieved with the restructuring of the promissory note. This is now the second frontier and it is an equally important, if not more important, negotiation for the Government to engage in. I wish the Minister well in that respect. The IMF has factored into its calculations that Ireland should receive in the region of €20 billion in respect of the shareholdings we hold in regard to those banks. I urge the Minister to continue to work on this issue with renewed zeal on behalf of the Government and the people. Other colleagues in Fianna Fáil will address different aspects of the deal and the liquidation of the IBRC. I place these remarks on the record on behalf of the Fianna Fáil Party.

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