Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

I thank the Acting Chairman for the opportunity to speak in this important debate. The deal the Government has secured to eliminate the promissory notes and replace them with a long-term bond is a very big step forward in our efforts to restore Ireland's debt sustainability and sustainable growth. It comes a year later than we had hoped, and there are more steps to take in the coming months and years to further improve our position.

This Government on coming to office inherited a desperate situation in which €64 billion had been committed to the banking sector, much of which had already been nationalised. Since then our objective has been to reduce the burden by any means possible, with the exception of default. That is something we have not countenanced because of the immediate loss of confidence that would occur, the sudden deepening and increased austerity that would be required, and the higher interest rates we would all face in the longer term.

However, good progress has been made in reducing that burden. The first thing the Government did was renegotiate the deal with the troika.

Fianna Fáil said at the time this could not be done. Sinn Féin suggested that we should not even try and that we should just send the troika home. Neither party holds that position today.

The renegotiation involved the restoration of the minimum wage, a reduction in interest rates and a lengthening of the terms of our loans, saving us approximately €10 billion in interest and allowing us to retain half the proceeds from the sale of State assets to invest in jobs and infrastructure.

The second step was the liquidation of IBRC, which occurred last week, thereby removing the last vestiges of Anglo Irish Bank and Irish Nationwide from the Irish financial landscape. As is the case with any insolvency, there are associated costs. Costs will fall due to us this year. However, significantly, this is the first time in the eurozone that costs are likely to be shared by unguaranteed senior bondholders. This has not occurred today.

The third step was to eliminate the promissory notes. No capital payments will fall due for 25 years and the average period associated with the bonds is 34 years. This will save €20 billion in cash borrowing over the next ten years and knock €1 billion off the deficit next year and every year beyond that. Independent commentators have estimated that this is the equivalent of a write-down of 30% to 40% in terms of net present value.

Five years ago, when the eurozone and global financial crisis began, it was not possible to liquidate banks or impose losses on senior bondholders, nor was it possible to restructure bank-related sovereign debt such as the promissory note. It is now possible to do so. Had these options been open to the country five years ago, we would be in a much stronger position today. It is an enormous tragedy that the European authorities took so long to change their policy in these areas.

The next step is beginning to pay down the principal sum, or pay off some of the €64 billion that now forms part of our national debt. There is value in the shareholdings and contingent capital that has been put into the banks. We want to recover that, but at the best possible price to reduce our debt burden. Already, €1 billion has been raised through the sale of the contingent capital of Bank of Ireland. That has been used to reduce the bank-related debt. There is contingent capital in AIB and shareholdings in other financial institutions that can be sold if the price is right. Furthermore, the ESM may have a role in buying shares from us in the banks or facilitating the private sale of stakes in the banks, thus allowing us to pay down more of that bank-related debt. A further step will involve the unwinding of the residual bank guarantee, thus reducing potential exposure for the Irish taxpayer.

This week two years ago, while speaking at a press conference during the general election campaign, I stated that a Fine Gael Government would not put another cent into the banks if they came looking for more unless they showed how they would impose losses on shareholders, subordinated bondholders, senior bondholders and other creditors. That speech has often been quoted since, sometimes by critics and opponents and sometimes selectively and out of context. Perhaps I should have been more nuanced at the time but I meant what I said and certainly did not believe the process would take so long or be so difficult. While it might have taken two years, that commitment has now been honoured. Anglo Irish Bank and Irish Nationwide are no more. We have liquidated IBRC and have put it into resolution. Finally, we have put a bank into resolution. This should have happened many years ago.

Burden sharing has been imposed on both subordinate and unguaranteed senior bondholders at long last. The restructuring of the promissory notes represents burden sharing with the Central Bank system for the first time, as pointed out in The Irish Timestoday by Ashoka Mody. This represents a write-down of 30% to 40% in terms of net present value in the view of some commentators. The principal sum will be paid down also, at least in part, through the sale of financial assets acquired as a consequence of the bailouts in the future. Based on my calculations, 2013 will be the first year since the crisis began in which more money will be recovered from the banks and financial institutions than we will pay into them. That will continue into next year and perhaps the year after. In short, the tables have turned and now we begin the process of getting some of our money back from the banks. That represents a significant change.

Another point I would like to make relates in particular to the connection between the austerity regime we are now experiencing and the banking crisis. One of the worst myths circulated among the Irish is that we are facing tax increases and expenditure cuts solely or predominantly because of the banking crisis. That is simply not the case. The problem with the budget and the deficit is a different one from the one we have with the banks. It is certainly the case that they overlap and that one makes the other worse, but it is not the case that they are the same. The reason we are facing austerity, spending cuts and tax increases in Ireland is simply that, during the boom period, taxes were reduced too much. The then Government recklessly reduced taxes to an unsustainable level using a temporary windfall from stamp duty during the property boom and capital gains tax revenue, particularly from the sale of shares in financial institutions. The then Government also increased expenditure too much, and that is the reason we are facing further spending cuts and tax increases. We need to become a normal country again in terms of spending. We are certainly not that because we still spend too much. We also need to become a normal country in terms of taxation again, and that will require some further increases in taxation.

If one compares Ireland with Northern Ireland and Britain, which is providing us with a bilateral loan, one will note that our social welfare payments are much higher. Even after the cutbacks in our most recent budget, we still have the fourth highest child benefit payments in the western world. They are much higher than those in many of the countries that are lending us money, including Finland. Public sector pay, be it that of politicians, policemen or hospital porters, is still much higher than in Germany and Austria, for example. This is still the case even when one takes into account taxation and the cost of living. This is the real truth that we as politicians, in both government and opposition, should be willing to say to people. We should be willing to say that the reason we face further tax increases and spending cuts is not promissory notes, bonds or issues concerning the banks but the fact that taxes were reduced to recklessly low levels during the boom period and expenditure levels were higher than those in equivalent European countries. This trend needs to change.

We have made enormous progress in the past few months. It has been extremely slow coming but it has come. It certainly does not stop here. This has been a major step forward but a lot more needs to be done. We will be seeing that in the coming weeks.

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