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

I move:

That Dáil Éireann endorses the Government’s decision to exit the EU/IMF programme of financial support in December without applying for a precautionary credit line.

I am delighted to give Deputies on all sides of the House the opportunity now to vote to exit the EU and IMF programme of financial support. Voting in favour of exiting the programme indicates we have the confidence to take control of the decisions that will determine our future as a State. When Ireland originally entered into the EU and IMF programme in late 2010, the country was facing significant challenges on several fronts. The banks were in crisis, unemployment was on the rise and our overall competitiveness had declined dramatically. Added to this, our reputation within the EU and the wider world was at an all-time low, tax revenues had fallen sharply and public expenditure had accelerated. This combination of events, in tandem with the impact of the global economic crisis, brought the State to its lowest point in decades and forced the previous Government to request a programme of financial assistance from the EU and the IMF.

Now, three years on, as we approach the conclusion of our programme we are beginning to reap the rewards of the sustained efforts of the Irish public. Market confidence in Ireland is high, the public finances are under control, we are reducing our deficit and debt levels and economic conditions and sentiment are improving. We are over 95% of the way towards meeting our target of reducing the deficit to less than 3% by 2015 and the Government is rigidly sticking to its fiscal objectives. The 2014 budget will continue this effort and targets a deficit of 4.8%, which will deliver a primary balance or a small primary surplus. The Government remains firmly committed to reducing the deficit to less than 3% by 2015 and to putting the debt ratio on a downward path.

The financial sector has also undergone significant restructuring and has been stabilised. This restructuring included deleveraging undertaken as part of the financial measures programme and the merger of Allied Irish Banks with the EBS. Exceptional liquidity assistance has been removed from the system following the liquidation of IBRC. NAMA has maintained a strong financial position, generating considerable cash, leaving it on track to redeem €7.5 billion of bonds by the end of this year. Private capital has been brought into the banking system by the sale of Bank of Ireland equity in 2011 and contingent capital notes this year, and also by the sale of Irish Life this year. Confidence in the Irish banks is beginning to return and this has helped reduce their reliance on eurosystem funding, which is now a fraction of what it was at the beginning of the programme.

Most significantly, we have also returned successfully to the financial markets. We now have substantial cash reserves estimated to be in excess of €20 billion by the end of the year and this will act as a domestic backstop. Domestic and international economic conditions are improving, monetary policy decisions are conducive to exit and confidence and sentiment towards Ireland has improved considerably in recent months. We have demonstrated our commitment to getting our country back on track and to successfully regaining sustainable market access. We have delivered over 260 actions under the programme, undergone 12 quarterly reviews and upon conclusion we will have drawn down €67.5 billion in funds. This successful implementation of our programme is what has paved the way to exit in mid December. Exiting our programme is an important milestone in Ireland's recovery and will send a further signal that Ireland as a country is recovering, returning to normal market funding and building for a sustainable future.

As Deputies are aware, the Government decided on 14 November that Ireland is now in the best position to exit the EU-IMF programme of financial assistance on 15 December without the need to pre-arrange a new precautionary credit line from our EU and IMF partners. This decision followed a careful and thorough assessment of all available options, and various consultations with the European Commission, the ECB, the IMF, the President and members of the Eurogroup, the Governor of the Central Bank of Ireland and the NTMA. As the Taoiseach mentioned last week, he had held discussions with Chancellor Merkel on Germany's offer to help. The discussions included a specific focus on finding ways to reinforce Ireland's economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish small and medium enterprises. In that context the German Government has asked KfW, the German development bank, to work with the German and Irish authorities. Officials of my Department have already exchanged working papers on this subject with KfW and the German Ministry of Finance, and discussions between my officials and officials of the German Ministry were held in Berlin yesterday. Further work on this will continue with KfW and other key stakeholders over the coming weeks both here and in Germany.

There has been some suggestion that we should take a precautionary facility to address some potential risk associated with the stress test to be conducted in advance of the establishment of the single supervisory mechanism, SSM, in the second half of next year. There is no evidence that either this test, which is to take place next year, or the current asset quality review being conducted by our own Central Bank, will generate any additional capital requirements for our banks. The Irish banks have, as at the end of June, strong capital ratios compared to the European average and are making good progress in returning to profitability, which is a necessity if they are to meet the new higher capital standards under CRD IV. Our banks were stress tested in 2011 and they were substantially recapitalised on foot of those tests. It is worth reiterating here that €64 billion in total has been provided by the State to the domestic banking sector over the past five years, or some 40% of GDP, to ensure a stable capital base. When account is taken of the private sector contribution the figure rises to over €86bn.

I should point out that the minimum core tier one capital requirement at the time our banks were recapitalised was 10.5%. The stress tests for Spain and Cyprus were conducted on a 9% ratio and the SSM test will be conducted on an 8% ratio, although the exact details of what this new ratio will consist of have yet to be confirmed. In addition to this, one should bear in mind that there has been some recovery in the economy and particularly in property prices since the previous stress tests were carried out, and interest rates are also substantially lower than was modelled.

As I have mentioned, the ECB is undertaking a comprehensive assessment of European banks, the results of which are expected to be published in November 2014. The Irish banks will be included in those tests. Before those tests are finalised there is an amount of negotiation that has to take place at the Eurogroup to agree the terms of a European backstop for bank resolution and recapitalisation. We are contributing fully to these negotiations and bring the perspectives and practical experience that we have gained over the past three years to the table to support a comprehensive solution to a eurozone-wide issue.

With regard to any capital shortfalls may arise under the European stress tests for any EU banks, there is a premise in some quarters that taxpayers should be the first port of call. This is not the case and European banks have a number of options open to them if they need to raise capital in the future. Access to capital markets, be it debt or equity for banks, is far better now than it has been for a number of years, as evidenced by a number of recent significant transactions. Banks can also generate capital internally by becoming more efficient and more profitable. The ESM, admittedly funded by European taxpayers, is another potential source of capital for banks and there is still negotiation to take place at Eurogroup to agree the terms of that facility, which will be available after the single supervisory mechanism has been put in place. The final point I would make is that applying for a precautionary credit line would not actually cover the risk should a wider problem emerge in the euro area, for example arising from the stress tests in late 2014, although I am not suggesting that such a risk might materialise.

Since we announced our decision last week the issue of eligibility for the ECB's outright monetary transactions, OMTs, has been raised. In this context, I would like to set out the facts regarding OMT. The governing council of the ECB made a decision to establish OMT in August 2012 and issued a press statement in September 2012 which outlined its technical features. According to this the purpose of OMT is: "Safeguarding an appropriate monetary policy transmission and the singleness of the monetary policy". It is therefore aimed at addressing systemic risks for the euro as a whole and is not country specific. Having a credit line does not of itself guarantee access to OMT, and it is a necessary but not sufficient condition. In that respect, in the absence of systemic risk, the position of Ireland is not fundamentally changed by the Government's decision last week not to seek a precautionary credit line.

The ECB press statement also notes that the ECB's governing council will decide on the start, continuation and suspension of outright monetary transactions, OMT, following a thorough assessment, in full discretion and acting in accordance with its monetary policy mandate.

I wish to say a word about post-programme surveillance. Once we exit the programme next month we will be subject to post-programme surveillance and a different form of monitoring by the EU and the IMF than when we were in the programme. There will be reviews every six months. That has been a long-standing feature of IMF programmes, and is also now a feature under the new EU governance rules. It is quite normal and is part of the wider governance changes that have been put in place at EU level for all member states to improve the way the euro area functions. In fact, the new governance arrangements for all eurozone member states help deal with some of the major problems that faced the euro area in the past and they will help avoid such problems emerging in the future. The new governance arrangements provide reassurance to the markets. They provide an early warning system if problems begin to emerge. They reduce the risk of contagion spreading from one member state to another, and they increase peer review pressure to help ensure responsible policies are pursued by all member states in the euro area.

The new governance arrangements are important for small member states with very open economies such as Ireland as it ensures that large member states pursue policies that are in the interests of the euro. Of course, it works both ways and we must act responsibly too. The post-programme surveillance arrangements must be seen in that context. Already, in the past two weeks we can see how these enhanced surveillance and governance arrangements will operate with the Commission giving warnings on a number of large member states.

All along I indicated that the decision on a precautionary credit line was finely balanced and since the announcement of the decision many commentators have also acknowledged that to be the case. That said, taking all factors into account, I am of the view that exiting our EU-IMF programme of financial assistance without a pre-arranged precautionary facility or backstop is the right decision for Ireland and now is the right time to make the decision.

I believe this is an assessment that is widely held both in Ireland and abroad, especially based on the generally positive reaction to our decision. The complete lack of financial market reaction, in terms of no change in yields or market liquidity, illustrates the market's view that the Government's decision was both correct and timely. Exit without a prearranged precautionary credit line represents greater normalisation, with Ireland now subject to EU economic co-ordination, fiscal surveillance, and governance rules that apply to other EU and euro area member states that are not in a programme of assistance.

The Government decision is the latest in a series of steps to return Ireland to sustainable growth and job creation. Confidence in Ireland has improved considerably in recent months and interest rates on Government bonds are now at record lows. Like most other sovereign eurozone countries, from 2014 we will be in a position to fund ourselves normally on the markets. Interestingly, our yields are now lower than the yields for some of the eurozone countries that would have had to approve a precautionary credit line for us.

Following exit from our programme we will also have a clear strategy in place. The next steps will be to continue on the path that we have been pursuing for some time - an economic strategy that is growth enhancing and managed within strict fiscal frameworks while reinforcing programmes supporting employment and opportunity. We are preparing a medium-term economic strategy that will articulate the key principles that will underpin economic policy for the period to 2020. This strategy will address the key policy areas such as education and training, labour market activation, industrial innovation, access to credit, competition and budgetary policy, and will complement the more short-term focus of other related policy efforts such as the Action Plan for Jobs.

We have lived up to our programme commitments. We have stabilised public finances and introduced frameworks for economic management supported by independent oversight. Recent indicators show the continuation of the recovery with higher employment, renewed growth, lower household debt and an underpinning of residential and commercial property values. While there are challenges and risks, we are confident that over the past three years we have demonstrated a strong track record of managing the programme and ensuring that we are now normalising the economic and financial situation into the future.

The decision the Government took is the right decision at the right time for Ireland. As a result of the commitment and determination of the Irish people to get the job done, we will be exiting the bailout in a strong position. I hope Deputies will put on record where they stand on exiting the programme and show their faith in the Irish people to make our own decisions.

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