Stephen Donnelly (Wicklow, Independent)
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I think it is fair to say there is agreement across the House that there is no moral or legal obligation on us to pay the bond due to be paid today by the Irish Bank Resolution Corporation Limited, formerly Anglo Irish Bank Corporation Limited. I agree with the Minister's own assessment from last year that it is a disaster and obscene thing for us to be doing. Taking that for granted, I would just like to understand why we are doing it. In his own speech last December, he dismissed the contagion argument, and I agree with that assessment. He pointed out that paying the bonds worsens our reputation, as has been borne out since, because we are now graded as lower than junk status. I also agree with that. This only leaves one argument, which is this assertion that the ECB believes that not paying this money back to the speculators would collapse the European banking system in some way. The IMF does not agree with that.

My understanding of the argument is that the ECB is forcing us to pay these speculators and if we do not, it has one of two options available which it will invoke. The first is that it will increase the interest rate for the emergency liquidity assistance and the second is that it can remove that emergency liquidity assistance. Doing either of those things would destabilise the Irish banking system and would cause exactly what the ECB claims it is trying to avoid.

Within that context, I would appreciate the Minister's position on the following two questions. Why does he think the ECB is credible if carrying out that threat on behalf of the ECB will cause what it is trying to avoid? Has the Government done a risk analysis of the cost of the ECB pulling either of these triggers relative to the costs of paying the bondholders?

Mick Wallace (Wexford, Independent)
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Thank you, a Cheann Comhairle, for selecting this topic. I accept that the Minister has been dealt a terrible hand, but I think the goalposts have moved in Europe. I do not think we should continue to give a certain impression to the Europeans about things. We are eager to be positive and there is nothing wrong with that. However, we are not calling our position as stark as it might be. I wonder if Chancellor Merkel is quite aware of just how difficult things are for many Irish people. It is all very well for her to stand up in the Bundestag and say nice things about us and how well we are doing. I would like her to come over here and have a look at some of the things that are going on here at the moment owing to the austerity measures we have been obliged to introduce.

Our domestic economy is in a poor place. Life is so difficult for 450,000 people who are unemployed. We are cutting learning support SNAs and language support to the marginalised in our society. We are closing hospital beds to balance budgets. If Chancellor Merkel came over here, perhaps she would be a little bit more sympathetic.

Someone stated the following in an article in The Guardian today:

Greece quitting the euro of its own accord would probably come as a surprise to policymakers in the EU. They never really intended to drive Greece out since the risk to banks would be enormous. Misled by the meek attitude of the Greek government, they imposed ever harsher measures, imagining they were doing Greeks a favour. Someone in the bubble of Brussels should have told the decision-makers what was really happening among Greece's grassroots.

Chancellor Merkel might be more sympathetic if we gave her a clearer view of how difficult things are for many people.

Michael Noonan (Limerick City, Fine Gael)
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I will read the prepared reply first and then will answer questions if we have the time.

It has always been my position that, given the significant cost of Anglo Irish Bank Corporation Limited and the Irish Nationwide Building Society, now known as the Irish Bank Resolution Corporation Limited, to the Irish State and the Irish taxpayer, there should be no repayment of unguaranteed senior unsecured debt. To avoid such repayments, the most logical option would have been to put the bank into administration. This was an option available to the previous Government, but instead it put the taxpayer on the line for the liabilities of the IBRC.

If we were to suspend payments to creditors in the IBRC, this would have a significant impact on both the bank and ultimately the State. This senior debt, unsecured as it is, is an obligation of the bank. If the bank does not meet such obligations, it would lead to a default and, following that, most likely insolvency. This would result in a significant increase in the cost to the State to resolve the IBRC.

In the period from the introduction of the guarantee in September 2008 to 31 December 2010, the previous Government allowed substantial repayments of around €20 billion of senior debt for the IBRC. One would gag on the hypocrisy of a party leader standing up here today complaining about a repayment of €750 million when his own party had already paid up to €20 billion to the creditors of Anglo Irish Bank. Since coming into Government, we have explored options with our European partners on senior debt burden sharing. As I stated after my meeting with ECB President Trichet and Commissioner Rehn last month, our European partners expressed strong reservations about burden sharing with senior bondholders in IBRC. Mr Trichet voiced his opinion that he is against such actions for two reasons. First, private sector involvement carries very significant contagion risk and may be inconsistent with encouraging private investors to return to markets. Second, he said Ireland had done particularly well over the summer. He mentioned the narrowing of bond spreads and he said that he felt that anything to do with senior debt burden sharing might knock the confidence of the market in the absolute commitment of the Government to take its place once again in normally functioning markets. As a result, bond yields could widen again and we would lose the ground we had gained.

Mr. Trichet's views were echoed by Commissioner Rehn. The positive international commentary on Ireland has been created by the Government's successful renegotiation of the memorandum of understanding, the introduction of the jobs initiative, the sizeable reduction of the interest rate on the EU-IMF programme and the reduction in the cost of the banks to the taxpayer. The value of support, present and future, we receive from our European partners far outweighs any short-term gain from imposing burden sharing on these bonds in the face of European opposition to such a move. For example, €110 billion of funding is provided by the ECB and the Central Bank of Ireland to the Irish banks at a cost of 1.5%, a figure below which they could borrow in the market. This is in addition to the €85 billion set out in the programme with the troika.

However, we still have unfinished business with our partners to find the most cost-effective way of resolving the IBRC over the long term. Technical discussions between officials are under way at present on the IBRC promissory notes. For these reasons, I have decided not to take unilateral action on burden sharing on IBRC senior debt. Therefore, the IBRC has today repaid senior debt of $1 billion, which is around €700 million. This was a publicly traded senior liability and, as noted earlier, the bank was contractually obliged to repay this liability on its maturity date. The IBRC has announced the sale of its €9.2 billion loan book in the United States. The process is continuing and approximately €3.5 billion in gross loans have transferred to buyers. The net proceeds from the sale will allow the bank to repay these unguaranteed bonds and also to reduce its borrowings, including emergency liquidity assistance from the Irish Central Bank. It is important to state that the redemption of the bond will be made by the IBRC. It will not be funded by the Exchequer.

Both of the Deputies were in the House this morning, or at least Deputy Donnelly was, when the Taoiseach read out a quote from my predecessor as Minister, Brian Lenihan, stating that when he introduced the issue of burden sharing by senior bondholders with the European Central Bank back in December, he was told that if he pursued that course of action there would be no programme. Thus, it is not just the threat of increased interest rates or a turning off of the tap of liquidity to the banking system. By the way, neither of these threats was ever made, but the point I am making is that these were not our only concerns. There was also the concern about the collapse of the programme. If the programme collapsed, we would have to make the full adjustment in one year. To reply to Deputy Wallace, that is when we would really have problems in this country, if we had to make the adjustment that is paced out to 2015 in one year so that our revenue receipts matched our expenditure. That would devastate public services.

This is a judgment call. I do not like it, and I have not changed my position on it. It is a choice between two evils, as far as I am concerned, and the decision we are making is the lesser of two evils. It is my judgment and that of the Government that it is more in the interests of the Irish people to grit our teeth and allow Anglo Irish Bank to pay the bond than to default, because default takes us over the edge of the cliff. As the situation in Greece deteriorates by the day, could the Deputies imagine what would happen if, from the point of view of the euro, a second front was opened in Ireland by a default? It could bring the whole thing down. I am not prepared to put the Irish people or this House in that position and I take that responsibility.

Jerry Buttimer (Cork South Central, Fine Gael)
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Hear, hear.

Stephen Donnelly (Wicklow, Independent)
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In the Minister's prepared statement, the two arguments he gave from Mr. Trichet were ones that he himself dismissed when in Opposition. He absolutely dismissed them. I agree with his previous analysis and I do not accept Mr. Trichet's analysis. I do not accept that there is a significant risk of contagion from not paying bonds such as the one today. I simply think he is talking nonsense, and the Minister himself said exactly the same thing in this House when he was sitting in Opposition less than a year ago.

My question is about the emergency liquidity assistance. The Minister is saying that no threats were made. Actually, the threat is the collapse of the IMF agreement. I think he said that no threats were made on the interest rate.

Michael Noonan (Limerick City, Fine Gael)
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I will clarify that.

Stephen Donnelly (Wicklow, Independent)
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The Minister said the real threat is on the IMF agreement. The agreement, as we all know, says nothing about these bonds, and therefore we are being held not just to an IMF agreement but to something beyond that agreement. I encourage the Minister to provide anything on the record to Members of the House in order that we can debate that and consider the cost-benefit analysis. I accept it is his judgment, but as fellow Members of Parliament it would be useful for us to be able to make judgments, and for that we need more than the Minister's say-so.

Mick Wallace (Wexford, Independent)
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The Minister is saying that if we were to refuse to pay the unsecured bondholders on this occasion, it would likely result in Armageddon and it would be a bit of a disaster. The rules are changing. Things are not as they were in Europe even last month, and they will change more. Bondholders will take it on the chin a lot more, and not just what they took in Greece last week. They will be taking more haircuts in the next two years. I am not saying we will fall out with the Europeans, but we need to put more pressure on Europe to give us a fairer deal. Everybody realises at this stage that bondholders will not continue to get all their money in the next two years. It is time the ECB got real and took that on board in dealing with our problems. Rather than being dogmatic with us - telling us we have to do this or that - it must give a little more leverage.

Michael Noonan (Limerick City, Fine Gael)
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Deputy Donnelly asked about the connection between the programme in which we are involved and the repayment of senior debt. The bit that is on the record is what the late Brian Lenihan said in this House before Christmas last year when he said it was made absolutely clear to him by the European Central Bank that if there was any talk of burden sharing with senior bondholders, there would be no programme. That is the connection between the two.

With regard to threats, the ECB does not operate that way. Jean-Claude Trichet is a perfect gentleman and I have had several conversations with him and with others in the ECB. It is also true, however, that when I start discussing in the same conversation the possibility of burden sharing with senior bondholders, I am always reminded of all the ECB has done for Ireland and how it kept the Irish banking system going with liquidity. Even now, when we have reduced the amount dramatically through deleveraging and accessing funds on the wholesale market, it is still €110 billion. It never threatened to raise the interest rate either, but it is also mentioned in conversation that not only is the ECB giving Ireland all this money, it is giving it at very favourable interest rates, and it will continue to do so.

Stephen Donnelly (Wicklow, Independent)
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Is there an implicit threat?

Michael Noonan (Limerick City, Fine Gael)
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The Deputy must make up his mind. These facts-----

Stephen Donnelly (Wicklow, Independent)
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I am asking the Minister.

Michael Noonan (Limerick City, Fine Gael)
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I think there is a risk. These facts are put on the table in the politest possible way in the course of the discussion, and we did not make headway on it, but there was never any statement that the bank would not continue to support us, and it has been very helpful to us elsewhere. It is also my judgment that the best way to succeed is to continue to negotiate the programme. We did it in May and July and we have set up a position of negotiation to reduce the debt burden, which will be ongoing into next year. To do that successfully, we need the goodwill of the European authorities, and we have it. It is not that those concerned are giving us pats on the head; they actually think we are doing a good job. They are prepared to work with us and they have told us they will continue to work with us.

I agree with Deputy Wallace that the situation is evolving rapidly in Europe, but we have not withdrawn from the renegotiation. Our primary commitment at election time was that we would renegotiate the programme, and we are renegotiating it in phases. We did the May phase and the July phase on interest rates and we are now trying to position ourselves for a phase in which we will get a reduction on the burden of debt. There are various ways of doing that, and what I have in mind is the objective of taking a tranche of that off the shoulders of the Irish taxpayer, rather than the methodology of getting there. One option is to pursue the promissory note, which we are actively doing. It would be of great benefit if we could re-engineer the financing of the promissory note, and there would be no default or restructuring. However, there are other options, and we are pursuing those also.