Dáil debates

Thursday, 5 July 2012

Priority Questions

Bank Debt Restructuring

4:00 pm

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Question 3: To ask the Minister for Finance if he will report on the expected economic and fiscal impact of the Eurozone bank bailout agreement reached in Brussels on 29 June 2012 and in particular the implications for the State's total national debt; and if he will further report on the Budget deficit, the Memorandum of Agreement with the Troika, the general austerity policy of the government and many other relevant issues. [32861/12]

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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Last week's announcement following the euro area summit in Brussels represents a major shift in European policy in terms of breaking the link between recapitalising the banks and the sovereign, a policy change for which I have repeatedly pressed at European Union meetings. This message has been echoed by the Taoiseach, Tánaiste and other Ministers in meetings with their EU colleagues. The specific mention of Ireland in the statement issued following the summit is a welcome development and the result of intensive discussions over the past year. It shows there is widespread recognition for the measures this country has implemented and the significant sacrifices Irish people have taken to bring our public finances under control.

This is an agreement in principle which provides an opportunity for the issue of bank debt to be addressed at an EU level. As the details have yet to be worked out, it is too early to state at this time the precise implications of the announcement. There will be further discussions at the euro group meeting on 9 July. Preliminary discussions on how to separate banking from sovereign debt are under way but I do not want to prejudice them by commenting on the likely contents of any agreement at this time. Given their complexity, the discussions are likely to take some time. Our shared objective, agreed with our European colleagues, is to break the link between banks and sovereigns, and we are open to discussing any method of doing this.

On the memorandum of understanding, the current position is that a budgetary consolidation package of some €3.5 billion in 2013 is set out as that required to reduce the general Government deficit to 7.5% of GDP next year.

Ideally, I would like to see a resolution of the banking debt issue by the end of October but it is unlikely the agreement reached last week will affect our plans for budget 2013, which will be announced in early December. This announcement is undoubtedly a positive development for Ireland. However, we cannot lose sight of the fact that, notwithstanding the considerable negative effect State support for the banking system has had on the public finances, including the debt level, there remains a large gap between day-to-day spending and revenues. This gap needs to be closed to enhance further the long-term sustainability of our public finances.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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The agreement on the banks was described by the Taoiseach, in respect of its effect on Ireland, as a seismic development and greeted with general elation in the capitalist press. Is it not the case that we do not have any specifics as to what the agreement will mean in the Irish context? The Minister indicated a meeting to be held later this month will go into greater detail. Is there any concept of what difference the agreement will make? For example, how does the Minister envisage the gross debt of the State breaking down? Will the massive amounts that had to be put into the banks be subtracted from it? Does the Minister know how it will work its way out? What impact will this have on the general policy of austerity pursued by the Government? What impact will it have when the Minister draws up the budget for 2013 next December?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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There are a number of specifics in the statement. The first decision is the principle now has been set out clearly at the highest political level in Europe that the vicious circle between banking debt and sovereign debt will be separated. The second decision is that in this context, Ireland's sustainability and success in the programme will be reviewed and third, it contains a reaffirmation that countries in similar circumstances will be treated equally. This is a statement of principle and the detail that underpins the principle will be worked out in the course of negotiations. Another element that is fairly firm but which is subject to negotiation is the timeline. It starts now and one condition is that a banking supervisor within the ambit of the European Central Bank must first be in place, after which the details will be worked out. The timeline is to the end of 2012.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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It seems to me that a single vague sentence referring to this country and generally praising the horrific austerity our people have been suffering to bail out bankers and bondholders is not massively strong ground on which to build. In respect of the national debt, the Minister did not indicate how this will have an impact in respect of a separation of banking debt and sovereign debt. Will the funding of the European Stability Mechanism, ESM, and the contingent liability to the State of up to €11 billion be affected by this agreement and if so, how will it be affected? How will the funding this State is obliged to put into the fund be affected by the proposal that has been agreed on in Brussels?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The best way to understand this is that Europe works in different ways at different times. Sometimes it examines the details of a problem and comes up with solutions and the sign-off is at the highest political level. At other times, when little progress is being made on the detail, the Heads of State and Government at the highest political level make a statement of principle in which they set out the principles of a policy and they then delegate the working out of that statement of principle. This is what has happened on this occasion and they have delegated the working out of the principle. However, there should not be any great surprise in this regard. Some Members present attended the meeting of the Joint Committee on Finance, Public Expenditure and Reform at which I gave the pre-meeting briefing before attending the ECOFIN Council. Both Deputies Michael McGrath and Pearse Doherty pressed me on what was Ireland's negotiating position and I stated the Government was trying to separate bank debt from sovereign debt and was trying to ensure there would be retrospective effects whereby any advantage that was granted to Spain also would apply to Ireland. In the process of the negotiation, since the Spanish situation is in need of an immediate solution whereas Ireland is working a programme and is not in particular crisis at present, the movement will be to deal with Spain. Thereafter, the Government will ascertain what are the details in this regard. This will give the Government a fairly strong negotiating position to apply similar solutions to Ireland, because it will invoke the clause of equality of treatment for people in similar circumstances.

Photo of Joe HigginsJoe Higgins (Dublin West, Socialist Party)
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Does the timeline extend to the end of the year?

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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Yes, it is tied into a banking supervisor being in place. However, it also is linked to President Van Rompuy's statement on a banking union. The banking union will develop a banking supervisor to supervise at least the main international banks in Europe, perhaps comprising 100 banks out of the 8,000 banks operating across the European Union. The timeline to have the banking supervisor in place is the end of the year. However, I hope we could go somewhat earlier, as there are reasons within Ireland's programme for October to be more in its interest than December.

Photo of Michael KittMichael Kitt (Galway East, Fianna Fail)
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We will now revert to Question No. 1 in the name of Deputy Michael McGrath.