Joe Costello (Dublin Central, Labour) | Oireachtas source

I welcome the opportunity to speak on the agreement reached last week on the promissory note arrangement. While much more work is to be done, the deal is a very important step in Ireland's economic recovery. I pay tribute to the Minister for Finance, Deputy Noonan, the Taoiseach and the Tánaiste for the work they have done to make this deal possible. The previous Government lumbered us all with the debts of Anglo Irish Bank and used the cumbersome and very expensive promissory note arrangement to do so. It would have been preferable had the State never been made responsible for these debts. However, the promissory notes were, in effect, already national debt, and any default would have been regarded as a sovereign default.

There is no magic wand that we can wave to make these debts disappear without serious repercussions. Instead of waving such a wand, the Government had to work to restore Ireland's reputation and engage in painstaking negotiations. These negotiations have resulted in a deal that delivers on the Government's commitment to put in place a fairer and more sustainable arrangement. It is a step forward along a path to economic recovery and renewed job creation. This deal means that the annual promissory note repayment of €3.1 billion over the next ten years will no longer have to be made. The replacement of the promissory note with long-term bonds will lower significantly the financing needs of the Government in the years ahead, making it easier to exit the bailout programme and return to the markets, which we intend to do at the end of this year.

The interest rate on the bonds is lower than what the Government would otherwise have had to pay. In effect, the Government has been able to arrange cheaper financing over a much longer period. We have effectively transferred over 40% of legacy banking debt into a very long-term debt and have significantly reduced the cost of financing this debt.

The agreement results in significant cashflow benefits as the State will no longer have to borrow €3.1 billion each March to meet the promissory note repayment. This equates to a cashflow benefit of €2.3 billion in 2014 and €20 billion over the next ten years, which is extremely significant. The deal will reduce the deficit by €1 billion per annum from 2014 onwards and significantly improve debt sustainability. This means the remaining adjustment required to bring the deficit below 3% in 2015 will be reduced by €1 billion. It will have a continuing beneficial effect on the State's finances for many years.

While the total debt has remained unchanged in nominal terms, the real value of what will be repaid has been reduced considerably. There has been much talk about kicking the can down the road, but this ignores some of the real benefits of the long-term bonds being used. Professor Philip Lane has pointed out how the value of these bonds in terms of GDP should be reduced over their lifetime. In 2013 €25 billion is effectively 15% of GDP. The average maturity of the bonds is 34 to 35 years. By 2048, therefore, if nominal GDP growth is 3% per year, the maturity value of the debt will be 5.3% of GDP. It would do future generations no favours if we were to attempt to pay off these debts in the short term or to lumber them with a sovereign default.

The agreement reached last week is another step in working our way out of the economic crisis inflicted on the people by Fianna Fáil. With the reduction in interest on the bail-out loans secured last year and the deal on the promissory notes last week, substantial progress is being made. Dealing with these legacy debts is only one area in which progress is being made to get the economy back on track. Real advances are being made in boosting Irish exports, for example. I am dealing with this area within the remit of my portfolio of trade and development. Last year exports of Irish goods and services increased by 5.1% and are now well above pre-crisis levels. Exports are at a record level and there is a record level of foreign direct investment, despite the fact that we are in a bailout programme. I never hear the Opposition talk about this. The strong export performance underpinned a GDP growth rate of 1.4%, an impressive figure, given the very difficult economic conditions prevailing across Europe and beyond.

Both the Government and Irish business have refocused in response to the economic crisis. The competitiveness we lost during the Celtic tiger economy is back. Ireland's competitiveness now compared with our trading partners has improved by over 20% since 2009. We are diversifying our export markets. The real heroes of the export markets are not the multinationals but the indigenous Irish companies that are becoming extraordinarily innovative and increasing their sales to the international markets by 20% to 30% per annum. The Government's renewed focus on emerging markets is proving successful. Brazil, Russia, India, China - the BRIC countries - and South Africa are being targeted in a special way and 27 other countries around the world are also being prioritised by the Government as part of its trade strategy.

The promissory notes deal is not separate from the commitment given on 29 June last year to break the vicious circle between private bank debt and sovereign debt. The Government is fully committed to the banking union, which is a precondition for utilising the European Stability Mechanism, ESM, to address the capitalisation of the banks that are a going concern. The Government will continue to participate in the development of the ESM, which many in the Opposition opposed, and the structuring of the single supervisory mechanism. The blanket guarantee that imposed an unbearable burden is being substantially chipped away and in due course we will deal with all of it. We have now dealt with approximately 40% of it and have a roadmap for dealing with the rest. We will bring the country back into the bond markets by the end of 2013 and begin the process of creating jobs and growth in the economy, after the legacy that was left to us.

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