Stephen Donnelly (Wicklow, Independent)
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Question 31: To ask the Minister for Finance with regard to his assertion in Dáil Éireann last Wednesday that he had concern about the collapse of the programme that is, the EU-IMF programme were the bond due to be paid by the former Anglo Irish Bank last week not paid, and his warning that if the programme collapsed, we would have to make the full adjustment in one year, if there is any record of threats to this effect made by the troika, other than the comment by the late Brian Lenihan TD, then Minister for Finance, quoted by the Taoiseach last Wednesday; if so, the details of these threats; his views, in view of the fact that a programme has been successfully put in place, that a non-payment of bondholders would lead to the collapse of that programme; and the way that this might happen. [34878/11]

Michael Noonan (Limerick City, Fine Gael)
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It has always been my position in regard to the payment of unguaranteed unsecured senior bonds that, given the significant cost of the Irish Bank Resolution Corporation, IBRC, formerly known as Anglo Irish Bank, to the State and the taxpayer, that the burden of the debt should be shared with bondholders. However, if we were to suspend payments to creditors in 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. Insolvency would result in a significant increase in the cost to the State to resolve IBRC

As I stated after my meeting with the President of the ECB, Mr. Trichet, and the Commissioner for Economic and Monetary Affairs, Mr. 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 indicated his view 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, once again, its place in normally functioning markets. The result of that might be a further widening of bond yields and a loss of the ground we have gained.

Mr. Trichet's views were echoed by the Commissioner, Mr. 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 in 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, some €110 billion of funding is provided by the ECB and the Central Bank of Ireland to the Irish banks at a cost below which they could borrow in the market. This is in addition to the €85 billion set out in the programme with the troika.

The Government's aim is to ensure the overall cost of resolving IBRC and the difficulties in the banking sector generally are kept to a minimum. I will consider the future payment of maturing bonds in IBRC in this context and in terms of what is best for the overall position of the State. However, Irish credit institutions access ECB liquidity under the same rules and subject to the same conditions as credit institutions throughout Europe. The ECB has given very large amounts of liquidity assistance to Irish banks and maintains a keen interest in the Irish banking sector. In this regard, I point to the statement of the ECB on 31 March last to the effect that against the background of the recapitalisation of the banks "the Eurosystem will continue to provide liquidity to banks in Ireland". Together with other decisions announced on this date, the ECB was and is clear about its support for Irish banks. I am not aware of anything to suggest otherwise.

Stephen Donnelly (Wicklow, Independent)
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The Minister has given more or less the same statement that he gave in the House last week. Relative to the question I asked, it is nonsense. Both the Minister and the Taoiseach stated unambiguously in this Chamber last week that if we did not pay the senior bondholders at Anglo Irish Bank, the EU-IMF programme would stop. The Minister said that he would therefore have to make an €18 billion budgetary correction this year. He used very emotive language and suggested to the people of Ireland that the deal was contingent on paying Anglo Irish Bank bondholders.

The question I asked was what record the Minister has, other than his reference to the late Brian Lenihan's assertion in this regard, to indicate that a failure to pay the bondholders would result in the cessation of the IMF programme. The reason I ask is that at the time of that assertion by Mr. Lenihan, the Minister and his party, in opposition, suggested that they would burn the bondholders. Now, however, the Minister is using information from Fianna Fáil from last November, which he ignored during the election, to justify his actions. What he said last week amounts to a serious allegation. I will repeat my question. What information does the Minister have, on record, that states that the EU-IMF deal will be withdrawn if we do not pay the unsecured senior bondholders of Anglo Irish Bank?

Michael Noonan (Limerick City, Fine Gael)
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Most of what the Deputy said is not correct. Our position, in reply to questions such as this, has always been to set out various hypotheses. The hypothesis I set out last week was that if the EU-IMF deal was withdrawn by the European authorities and the IMF, we would need to make an adjustment, which at present will take more than five years, all in one year. That is where the €18 billion came up. That needs to be remembered by people who advocate very robust action. If one is risk adverse, one would not take the kind of risk that would have one back in the House introducing a budget that took €18 billion out in one fell swoop, which is a reasonable position.

As I have said on several occasions, in my view my predecessor in office, the late Brian Lenihan, was an honest and honourable person. When he said he was given to understand what I read into the record last week, I believe him. That was the position as was stated then at approximately the start of the programme. No threat has been made to me in all the meetings I have had in Brussels either by European colleagues or by officials of the bank, the IMF or the Commission. They have all been very supportive. Everybody in this House realises how dependent we are on external aid. The Deputy will know that the money is released to us every three months on the basis of fulfilling conditions in the memorandum of understanding, which runs right down to minor conditions that need to be fulfilled.

Stephen Donnelly (Wicklow, Independent)
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If the Minister believed the statement the late Brian Lenihan made here, then coming up to the general election he should have told the people: "I believe Brian Lenihan. I believe the IMF deal is contingent upon us paying the bondholders. Therefore if you elect us into government, we are going to continue to pay the bondholders." If the Minister believed what he said, that is what he should have told the people but he clearly did not tell them. I do not think the Minister believes it - I certainly do not believe it because it is not credible. It may have been stated during the negotiations but there is nothing in the agreement. What is important is that we are being held to the agreement.

Michael Kitt (Galway East, Fianna Fail)
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I thank the Deputy. I am going to call on the Minister to reply.

Stephen Donnelly (Wicklow, Independent)
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I have a supplementary question. Another of these bonds for €1.2 billion will come up in January. What does the Minister believe will happen if he keeps to the people's understanding of his election promise, which was to burn these bondholders or in this case secondary speculators who now own the bonds?

Michael Noonan (Limerick City, Fine Gael)
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The Deputy is like other Opposition Deputies who always insist on half-quoting me. I never said it was Fine Gael policy in government to burn bondholders. I said it was Fine Gael policy in government to burden-share or burn bondholders provided we got the consent of the European Central Bank to do so. I campaigned on that basis right through opposition and through the general election campaign. I challenge the Deputy to find any occasion when I did not qualify my commitment on burden sharing with bondholders by saying we would not do it unilaterally, but would always do it with the consent of the European Central Bank.

Pearse Doherty (Donegal South West, Sinn Fein)
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The Minister should check his banking policy.

Michael Noonan (Limerick City, Fine Gael)
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That bank's consent was not forthcoming. It is as blunt as that. No one is trying to hide anything from the Deputy. The European Central Bank's consent was not forthcoming.

Stephen Donnelly (Wicklow, Independent)
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What does the Minister believe will happen in January?

Michael Noonan (Limerick City, Fine Gael)
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In answer to what I believe will happen, I was here for five months listening to people shouting to me that we would never get a reduction in the interest rate, but we did. Negotiation with the European authorities is a lengthy process that goes inch by inch. We are moving it forward inch by inch. My present objective is to seek a reduction in the overall burden of the debt on the shoulders of the taxpayers. There are various approaches and various ways in which that could be delivered, of which working on the promissory note for Anglo Irish Bank is just one. I believe it will be a medium-term project rather than an immediate one.