Michael McGrath (Cork South Central, Fianna Fail)
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Question 31: To ask the Minister for Finance if he has received any indication that the Troika, EU/ECB/IMF, will require Ireland to achieve a fiscal correction of greater that €3.6 billion in 2012; and his views on whether this is still the appropriate figure in view of all available economic and fiscal data. [18892/11]

Michael Noonan (Limerick City, Fine Gael)
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As part of the memorandum of understanding on specific economic policy conditionality of the joint EU-IMF programme of financial support for Ireland, budget 2012 is to include an overall budgetary consolidation package amounting to at least €3.6 billion. This was the figure contained in the original memorandum of understanding agreed at the time of entering into the joint programme late last year and it is also the figure contained in the updated April 2011 version of the memorandum of understanding which was published following the first and second quarterly programme reviews in April of this year.

The precise nature of the measures to be implemented in 2012 will be decided upon in advance of budget 2012 in light of more up-to-date economic and fiscal data and the outcome of the comprehensive review of expenditure, which is under way.

The stability programme update submitted to the European Commission in late April forecasts the 2012 general Government deficit at 8.6% of GDP. Based on the macroeconomic and fiscal outlook at the time, this target is consistent with a level of adjustment of the order of €3.6 billion and is within the terms of the revised excessive deficit procedure recommendation issued by the ECOFIN Council last December.

Quarter 1 economic data released in recent weeks and budgetary data for the first six months of the year which were released yesterday were both broadly consistent with expectations. My Department is in the process of assessing what implications the latest macroeconomic and budgetary data might have for 2012 and beyond. Such assessment will, along with later data, inform the Government in the context of its budgetary preparations over the coming months.

The next quarterly review of the joint EU-IMF programme of financial support gets under way tomorrow and I, along with my officials, will be discussing with the external funding partners a range of economic and budgetary issues, including the current outlook for 2012.

Michael McGrath (Cork South Central, Fianna Fail)
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Clearly the precise mixture of the elements in December's budget will not be decided until closer to the time. However, the key question is whether it is the mixture of elements or the overall figure that is subject to review between now and then. Rightly or wrongly, the Minister has considerably narrowed the options available to him in the preparation of that budget.

Michael McCarthy (Cork South West, Labour)
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The Deputy should ask a question.

Michael McGrath (Cork South Central, Fianna Fail)
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On the spending side he has removed social welfare completely and public sector pay is dealt with through the Croke Park agreement. On the taxation side-----

Michael McCarthy (Cork South West, Labour)
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The Minister to reply.

Michael McGrath (Cork South Central, Fianna Fail)
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-----corporation tax is not touchable, income tax changes will not happen, VAT policy is set in stone and so forth. Is it the make-up of the €3.6 billion that is subject to review depending on the economic data available at the time or is the figure itself open to review between now and then?

Michael Noonan (Limerick City, Fine Gael)
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That is a very interesting question, but we are a long way from the budget which will be announced early in December. The Deputy will recall from the memorandum of understanding that while the target that has been recited for 2012 has been €3.6 billion, there is another target not so frequently mentioned, which is achieving a deficit of 8.6%. We hope the means, a €3.6 billion adjustment, will achieve the 8.6% target, but there are many variables between now and December, which means that could move slightly but not by much. I said yesterday that the adjustment would be approximately €4 billion, but the target was €3.6 billion. In other words we must achieve a target of €3.6 billion but there is an issue of whether €3.6 billion is sufficient to bring the deficit below 8.6%. That is why I used the figure yesterday to indicate it is not as precise as people think and in the range of between €3.6 billion to €4 billion will get us in with the required deficit. Of course we will be discussing that with the troika as the year goes by. We will also be discussing the elements of the adjustment that will get us to those targets.

Michael McGrath (Cork South Central, Fianna Fail)
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If I interpret the Minister correctly, he is saying the percentage deficit must be achieved and that, therefore, will determine the exact monetary amount of the adjustment to be introduced in the budget for 2012. If there is slippage in economic growth figures during the remainder of this year, that figure of €3.6 may increase significantly if we are still to come within the deficit of 8.6% of GDP for 2012. Is that a fair summary of what the Minister is saying?

Michael Noonan (Limerick City, Fine Gael)
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I am not saying that as precisely as the Deputy is putting it. I am saying there are two targets: one is a monetary target of €3.6 billion and the other is a deficit target of 8.6% of GDP. To try to get the two of those aligned is what has to be done. Already, the target we have provided to Europe would get us to 8.6% with an adjustment of €3.6 billion, and there are other estimates which are slightly north of that. The IMF estimates that an adjustment of €3.6 billion would get us to 8.8%, so, while the figures are very close, there is a slight variation.

Michael McGrath (Cork South Central, Fianna Fail)
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Is the 8.6% a must?

Michael Noonan (Limerick City, Fine Gael)
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No, it is not a must but, obviously, it is a matter for negotiation. The assumption is that an adjustment of €3.6 billion will get one to a deficit of 8.6%. As the year goes by, we will know, but much will depend on the year-end figure. Obviously, if we have a year-end figure which exceeds the target, then the adjustment would not be as strong as would be required in the Estimates. However, if we fell short at year-end, it would be another variable that must be taken into account. I am not saying anything particularly new. I am simply saying that next year will be difficult and there will be a hard budget. Whether it is €3.6 billion or €4 billion, it will still be a very difficult budget.

Michael McGrath (Cork South Central, Fianna Fail)
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So the €3.6 billion is fixed.

Michael Noonan (Limerick City, Fine Gael)
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It is a minimum adjustment.

Pearse Doherty (Donegal South West, Sinn Fein)
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Question 32: To ask the Minister for Finance if, during any of his meetings at the European Council, he has raised the fact that the European Union will profit to the tune of €10 billion as a result of the 3% mark up on the interest rate charged on the EU portion of the EU/IMF bailout loans; and if he will make a statement on the matter. [18895/11]

Michael Noonan (Limerick City, Fine Gael)
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The EU portion of the EU-IMF programme funding for Ireland is made up of the European financial stabilisation mechanism, EFSM, the European financial stability facility, EFSF, and the bilateral loans from the UK, Sweden and Denmark. Of these, only the EFSM relates directly to the European Union. Based on full drawdown of the €22.5 billion from the EFSM, the current margin of 2.925% and an average maturity of 7.5 years, the gross margin would be about €4.9 billion, out of which its costs would have to be deducted. Interest paid on EFSM loans, including the margin, will be entered into the EU budget as miscellaneous revenue from which all member states, including Ireland, benefit.

The margin on borrowing from the EFSF, on the other hand, accrues to the EFSF in the first instance. Based on the current margin of 2.47%, full drawdown of the €17.7 billion available and average maturity of 7.5 years, the gross margin will be around €3.3 billion. This ultimately accrues to the EFSF guarantors.

The margin from bilateral loans accrues to the relevant country. Only the UK facility has been agreed and it provides for a margin of 2.29%, providing a gross margin in the order of €650 million. The agreements, and therefore the margin, for Denmark and Sweden have yet to be finalised. Taken together, the total margin applying under existing arrangements could be of the order of €9 billion over the period.

It is the Government's strong position that the margin being charged on loans from both the EFSM and the EFSF is excessive. This argument, which has been supported by the European Commission, is one I and my Government colleagues, plus our officials, make at every possible opportunity. It is safe to say my ECOFIN counterparts are fully aware of this issue and I will continue to remind them and press them on this matter.

Pearse Doherty (Donegal South West, Sinn Fein)
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The Exchequer figures yesterday showed that just over 20% of all taxes collected in the State are now needed to pay off the interest on our national debt and that figure is about to increase given the figure for servicing the interest on our national debt is €5.2 billion this year and will increase to €9.2 billion by 2015. We often talk about figures when dealing with questions in the House, which is important, but there is also the question of fairness. Given this increase, does the Minister believe it is fair that our European partners are profiting by more than €9 billion as a result of our hardship and as a result of decisions this Government and the previous Government have taken to bail out bankers?

The Department of Finance and the European Commission have been busy sending out press releases on this issue, including one sent out before 7 a.m. today. The NTMA estimated at the beginning of December that the average cost of the EFSM loan would be 5.7% - I understand the previous Minister for Finance indicated this to the House - but it is expected as a result of the increased cost of borrowing at European level that the cost will probably increase to approximately 6.1% or 6.2%. If this is the case, the cost of borrowing under that portion would have increased by approximately €750 million. Will the Minister clarify whether this is the case? Is the average rate under the EFSM by the NTMA on 1 December last 5.7% or has the cost increased as a result of the cost of borrowing at European level?

Michael Noonan (Limerick City, Fine Gael)
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It is very fair to say that when we talk about a bailout for Ireland, or indeed Greece or Portugal, we are not talking about grant-in-aid. We are getting a facility to borrow money and we are paying a very high interest charge on it. We are not in receipt of charity or of grant-in-aid. It is simply a loan facility to keep us going when we could not raise money on the markets, and the interest rate is very high.

I have argued consistently - in Opposition, in Government and at ECOFIN - that one of the flaws in the bailout programmes across the programme countries is that the cost of the programme is excessive, which makes it very difficult for programme countries to come out of programmes because the margin is too big. Clearly, the people who designed the programme in consultation with the last Government had considerations of moral hazard as well as being paid a strong interest rate. They wanted to discourage people from going into programmes and they wanted to ensure that people came off programmes at the earliest possible date. Of course, it is a flawed analysis. As I have told our colleagues in Europe, when a party like Fianna Fáil, which was the party of Government for a generation, is taken from 42% to 15% in a general election, that is moral hazard enough to be going on with when one is Government. One does not need a penal interest rate on top of that to make a Government behave. Despite this, these were the considerations that fed in.

A more realistic consideration is that some of the guarantor countries which are also contributors to the fund, such as Spain and Italy, were last week borrowing money at approximately 5%, and one could not expect guarantor countries which are contributing to borrow at 5% and lend at less than that. There is a real issue in this regard as well because, while the margin over the fund is approximately 2.5%, the margin over the costs of contributors to the fund can be quite slight. This is why it is so difficult to negotiate a very significant interest rate reduction. As a general principle, the architecture defending the euro has flaws in it, one of which is the price of the money.

Pearse Doherty (Donegal South West, Sinn Fein)
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As a supplementary question-----

Michael McCarthy (Cork South West, Labour)
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We are out of time and must move on.