Peter Mathews (Dublin South, Fine Gael)
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Next Wednesday, 25 January, is the due date for the redemption of a bond issued originally by Anglo Irish Bank Corporation, now the Irish Bank Resolution Corporation. We are at an important financial crossroads in the history of our country. Anglo Irish Bank has been insolvent and supported by financial engineering, promissory notes and the emergency liquidity assistance of the European Central Bank and funds from our Central Bank. The debt that lies embedded in what was Anglo Irish Bank was not created by the citizens of this country. It has been meted out onto their backs by a mixture of incompetence and mismeasurement over a certain period under the past Administration.

We are at a moral crossroads. We should bring to the attention of the creditors holding the bond the facts that the bank is insolvent and that, in effect, it is not a case of our not wanting to pay but of our not being able to do so. We can add dramatic emphasis to these facts by saying we honour our just debts. However, where debts are present that we have not the capacity to repay, we have got to explain the full story, which is not understood by the creditors, and state we cannot pay and that the bank is broke.

Consider the debt of €1.25 billion. The attention of the creditors will be in sharp focus because the banking system, the Irish-owned banks, are in debt to the ECB and our Central Bank at a level of approximately €150 billion. It is the forbearance and tolerance of citizens that keeps the financial edifice and engineering of the eurozone and the greater financial system of the developed world in place. We have been doing considerable work, facing enormous challenges. Through the great work of the Minister for Finance, Deputy Noonan, and the Taoiseach, we are bearing the load of trying to bring about a fiscal adjustment in line with the troika agreement signed in November 2010. All that work is important and must be done but the legacy debt is outside the responsibility of the people of this State.

One and a quarter billion euro is almost half the budget introduced in December. It is eight times the sum that will be raised from the household charge and twice that which will be raised by the VAT increase. The debt crisis in Ireland and other countries cannot be solved by adding more debt. I have recommend to Members of this House the book Endgame by John Mauldin, which explains how a debt crisis has developed over the past 15 years. Loading more debt on this country to pay legacy debt is like suggesting a drink problem can be solved by another whisky.

Michael Noonan (Limerick City, Fine Gael)
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I thank Deputy Mathews for raising this very important issue. The repayment of the bond in question is an obligation of the bank and will be repaid by the bank. It is important to be clear that it is the bank and not the Exchequer which will meet this obligation.

The Government has committed to ensuring that there is no forced or coerced involvement by the private sector burden sharing on Irish senior bank paper or Irish sovereign debt without the agreement of the ECB. This commitment has been agreed with our external partners and is the basis on which Ireland's future financing strategy is built. While the cost to the Irish taxpayer has been and will remain significant, the Government clearly recognises the need to work as part of the eurozone in order to ensure a return to the funding markets in the future. The only EU state where private sector involvement will apply is Greece. The following was agreed by all 27 member states at the euro summit last October:

15. As far as our general approach to private sector involvement in the euro area is concerned, we reiterate our decision taken on 21 July 2011 that Greece requires an exceptional and unique solution.

16. All other euro area Member States solemnly reaffirm their inflexible determination to honor fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole.

This was agreed by the Heads of State and Government at their meeting in October, and Ireland was included in the 27 states that agreed to it.

It is not correct to state that only taxpayers have borne the burden of rescuing the Irish banks. Holders of equity in the banks have been effectively wiped out in burden sharing while holders of subordinated debt have incurred a €15.5 billion share of the burden to date, including €5.6 billion since this Government took office less than a year ago.

To impose burden sharing on senior bondholders, or to postpone the repayment of this bond at this point in time, is not in Ireland's best interest. What is in the Irish people's best interest is that we regain our financial independence and that we place ourselves in a position to re-enter the financial markets at the earliest possible date. Reputation, reliability and commitment are essential elements of this proposition and reneging on senior debt will not enhance the Irish position. The implementation of the programme is going well. We are working out of a very deep hole and we are making very real progress. We do not need to scupper our recovery, scupper the goodwill generated or alienate our partners by taking unilateral action which in the medium to long term will prove wholly counterproductive.

If we were to postpone or suspend payments to creditors of IBRC, this would have a significant impact on both the bank and, ultimately, the State. The senior debt, unsecured as it is, is an obligation of the bank. If the bank does not meet such an obligation, it would lead to a default and, following that, most likely insolvency. Insolvency would result in a very significant increase in the cost to the State to resolve the IBRC. In such circumstances, the State's negotiating position is, contrary to what is suggested, seriously weakened, if not wholly undermined. Further, the financial market's view of Ireland as a place to do business or invest would be seriously undermined.

We should also consider that 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 below which they could borrow in the market. This is in addition to the €85 billion set out in the programme with the troika. Nonetheless, let me state clearly that we still have unfinished business with our partners to find the most cost-effective way of resolving the IBRC over the long term. We will seek any and every opportunity to put Ireland's case forward to achieve the best possible outcome for the State.

In conclusion, as I have indicated, there is no private sector involvement for Irish senior bank paper or Irish sovereign debt without the agreement of our external partners. This commitment has been agreed with our external partners and is now the basis on which Ireland's future financing strategy is built. This, I strongly contend, represents the best approach which will achieve our re-entry to the financial markets.

Peter Mathews (Dublin South, Fine Gael)
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While I will not get into a long debate, Greece will be the beneficiary of at least a 60% write-down of its debt obligations. The Greeks got the attention of their creditors by going out in the streets and having riots and by people being killed. We have knuckled down to correcting a fiscal imbalance and, at the same time, we have stayed silent. We have been straitjacketed by the legacy debt. Our loan losses in the banking system were €100 billion. While I know the shareholders and some of the subordinated bondholders suffered, the remaining losses were in the banks without being declared. The ECB stepped in to redeem bondholders to date, which was a mistake. We are compounding the mistake by going along the same route now.

We have got to be honest about it and open up the discussion. We are not defaulting; we are opening a discussion. I made the point that we cannot pay. I use the word "we" euphemistically or collectively in regard to the bank and the State. We cannot pay because of the guarantee that extends over the bank. It is a case of us lifting the telephone and asking, "Can we have your attention, please?" We cannot pay and we want to open a discussion and explain to exactly how the creditor liabilities of our banking system remain, and how they should be written down. There is further writing down to do. We have a €60 billion to €75 billion of write-down to organise and negotiate.

To use an analogy, we have a steeplechase race with about four miles to go. We have big jumps ahead. Normally, a steeplechase horse will start with about 12 stone on its back. Ireland's legacy debt of private debt, non-financial corporate debt and national debt when it peaks out at €120 billion is the equivalent of 24 stone on the back. It is not a possible race to run.

Michael Noonan (Limerick City, Fine Gael)
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I do not disagree with Deputy Mathews' analysis. However, we are in a situation which we inherited from our predecessors, who entered into solemn and legally enforceable commitments in respect of Anglo Irish Bank, as it was then. Of course, Deputy Mathews is correct that we should do everything possible to reduce the debt burden on the taxpayers of Ireland and to enhance Ireland's capacity to repay its debts. We are working on that and making some progress.