Stephen Donnelly (Wicklow, Social Democrats) | Oireachtas source

The Social Democrats support the Bill. We support the single resolution mechanism, which is already in operation, and we support the single resolution board, which is one part of the single resolution mechanism. The Bill gives the Minister for Finance the power to provide bridging finance of just over €1.8 billion to the single resolution board in certain eventualities, for example, when the bail-in mechanism has been used up or the existing central financing has been used up. Critically, the Bill describes the €1.8 billion as "bridge financing". Obviously, states should not be in the business of bailing out private banks and private investors. We support the single resolution board and the single resolution mechanism. We are comfortable with any Minister for Finance having the power to provide up to €1.8 billion as "bridge financing" with a clear undertaking, as set out in the Bill, that the single resolution board will repay that money to the State. That money would go into the Central Fund.

When we are looking forward and considering how the eurozone should conduct the wind-up of private banks, we should take the opportunity to look at the past. We are by no means clear of the damage that has been done. Like many others, I argued that regardless of whether a formal mechanism like the single resolution mechanism was in place, banks should have been allowed to fail. There are mixed views among informed people on whether banks like AIB, Bank of Ireland and Permanent TSB should have been allowed to fail. There are pros and cons on each side of the argument. I do not think there will ever be a full consensus on it. However, it is very clear that the banks which subsequently comprised the Irish Bank Resolution Corporation should have been allowed to fail. Anglo Irish Bank should have been allowed to fail. It was essentially a casino for developers and bondholders. Many international investors invested large sums of money in Anglo Irish Bank because it was paying them back higher yields.

They did not do their due diligence because, if they had, they would have concluded quickly that they should not have lent money to Anglo Irish Bank. Unless, of course, they knew something, which the rest of us did not know at the time, namely, even if Anglo Irish Bank went to the wall, they would still get all their money back because the State would step in and pay them back. However, not only did these bondholders get their money back - this is a point that cannot be stated enough - they got all the interest payments on their loans back as well. Not only did they not lose any money, they walked away with all of their profits. Not only did the Irish people pay them back their capital, be it €100 million or €1 billion, we actually gave them all the profits on it too, as if Anglo Irish Bank and Irish Nationwide had not gone to the wall. That is outrageous.

The chances of us getting back any of the money we put in to the pillar banks is slim. An argument is put forth that our equity in those banks, plus the repayments from them, will cover that money over time. That is not the case for Anglo Irish Bank and Irish Nationwide, however. The famous promissory note for just over €30 billion was paid down in tranches over several years. Then, when the political pressure became too great, the Government entered into an agreement with the so-called Anglo promissory notes which was voted through the House one morning at 2.30 a.m. According to the Comptroller and Auditor General's report, up to last September, the interest payments alone on the total cost to the State of the moneys it used to bail out the banks came to €9 billion. Imagine what we could do with €9 billion in this country.

The previous Government heralded the creation of the Anglo promissory note as a great triumph and piece of negotiation. At the time, there was some extraordinary misinformation given in the House when some Government Members claimed - in fairness the Minister for Finance, Deputy Noonan, did not - they had avoided having to pay the promissory notes. That is not only untrue, but exactly the opposite is the case. What the Government did was take two dodgy IOUs from two dead and negligent casinos, which no longer existed and were under criminal investigation, turned them into gilt edged sovereign debt and put a payment schedule against that.

It is important we understand this payment schedule because minimum amounts were put against it. For 2015 to 2018, the minimum amount the State had to pay back was €500 million a year. For 2019 to 2023, the minimum amount per year the State had to pay back was €1 billion. After that, it rose to €2 billion a year. That means that at a minimum, the State had to tear up €500 million a year for a few years, then tear up €1 billion a year for a few more years and then tear up €2 billion a year for a few more years. It turns out, however, that we did not meet the minimum requirements and massively exceeded them. Last year, the Central Bank of Ireland only had to sell - essentially tear up - €500 million. However, it went four times further than that and sold €2 billion worth of sovereign debt. What that means is that it took the IOU to these two dead casinos, sold them out on to the market, borrowed money from the market and tore up that bit of the IOU. There is no way we can get back that money sold out. The Government has gone out in good faith to the markets, asked if it can borrow money, sovereign debt, and then investors have said “Yes”. The Central Bank then took one of the bits of the IOU out of the safe and tore it up. We got nothing in exchange but the national debt gets turned from questionable IOUs into irrevocable sovereign debt.

The Social Democrats, and many others, contest that the debt is odious debt. Odious debts are those contracted against the interests of the population of a state without its consent and with the full awareness of the creditor. That appears to absolutely match the Anglo promissory notes. The Social Democrats contend that the Central Bank of Ireland does not exceed its minimum mandates in tearing up those IOUs by a factor of four. The Social Democrats contend that the State should take a position that those debts - the Anglo, IBRC, Irish Nationwide promissory note - are odious debt. The Irish people have been asked to give money to the Government and the Central Bank of Ireland so that people who loaned money to Anglo Irish Bank in 2007 get it all back as well as their profits. Just paying the interest on that, plus the loans to the other banks, comes to €9 billion so far. That is odious debt.

Leaving Bank of Ireland, AIB and Permanent TSB debt aside, the IBRC debt is odious debt which the people of Ireland should never have to pay. It is debt which the European political, economic and monetary institutions should recognise as odious debt. They should say that whatever about the pillar banks, we gained by keeping those banks alive. However, they should say we did not gain by keeping Anglo Irish Bank or Irish Nationwide alive. Instead, the eurozone did benefit because no bank failed, meaning there was no contagion or additional risk. Accordingly, they should say we are going to waive Ireland’s obligation to pay any more of that money back.

The current position of the Government is that all the money loaned to Anglo Irish Bank by anonymous, foreign, professional investors, who did not do their homework, will be paid back in full. That should not be the State’s position. It should be that we recognise the IOUs are there, we are pausing payment on them, we are seeking multilateral negotiation and agreement to classify them as odious debt and, in so doing, through agreement, Ireland's obligations to pay them will be waived. Alternatively, we can use a fudge for the monetary purists in Germany, Finland and other places. We can say we just do not "discreate" money - I apologise for making up words. While we cannot just make debts go away, we can take a 100 year interest only loan. Accordingly, the money still exists, but inflation takes care of it and it does not act as a burden on the people.

The Social Democrats believe one mechanism for that is a debt conference on everything that has happened over the past several years in Ireland, Greece, Portugal and Italy. As we know, there was such a conference in London after the Second World War. The country that got its debts extended out so inflation took care them, getting the greatest write-down in sovereign debt history in the developed world, was Germany. This was because some of the debts incurred were viewed to be odious debt.

The Social Democrats support this Bill. We support a mechanism whereby banks can be wound down. No bank should be too big to fail. Hundreds of banks fail in America all the time. It has mechanisms in place and guarantees to deal with them. That should be the case in the eurozone too. However, we should not simply walk away from the tens of billions of euro still on the back of the Irish people, plus interest, because of Anglo Irish Bank and Irish Nationwide. We are not suggesting any unilateral action. We should, however, be making the case and maintaining the position that this portion of the banking debt is odious debt. It did not benefit us at all.

It benefited the eurozone and the ECB which has a mandate to secure stability in the European banking system. Multilateral negotiations to classify the Anglo promissory note, or the IBRC promissory note, as odious debt, with a view to having it written off or repayment pushed 100 years into the future at a zero interest rate, are what is required.

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