Dáil debates

Thursday, 5 July 2012

Priority Questions

Bank Debt Restructuring

4:00 pm

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Question 1: To ask the Minister for Finance if, building on the Euro Area Summit Statement of 29 June 2012, he will outline his specific objective in the negotiations that will now follow, with particular reference to breaking the link between bank debt and the sovereign; his views on the way the €64 billion of taxpayers' money which has been injected into the banks can be revisited with the burden being lifted from the State; and if he will make a statement on the matter. [32959/12]

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The Government welcomes last Friday's euro area summit statement. As the Deputy is aware, it has been working extremely hard to secure a deal on the Irish bank debt. The recent euro area summit statement represents a major shift in European policy in terms of breaking the vicious circle between the banks and the sovereign. It is particularly pleasing to note that last Friday's summit agreement reflects the proposals set out in the Taoiseach's letter to the other Heads of Government that was sent following the approval of the fiscal stability treaty. The Government's objective remains the same, which is to break the link between the banks and the sovereign, thereby making the debt more sustainable and to maximise the benefit to the Irish taxpayer.

The summit agreement provides an opportunity for the issue of the bank debt to be addressed at an EU level. It has been agreed that when an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area, the European Stability Mechanism, ESM, could have the possibility to recapitalise banks directly. While the policy position is very positive, it is not possible at this stage of the process to attempt to quantify the benefits that will accrue to the Irish economy. The details of how to separate banking from sovereign debt must now be discussed in detail, including the capital already injected into the Irish banking system.

While the details, structures and arrangements have yet to be finalised, the policy statement provides a basis for a euro area solution to what essentially is a euro area problem. This will be one of the Government's key priorities between now and the end of year with the initial formal steps, at a European level, taking place at the euro group meeting on 9 July.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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At the outset, I apologise to the House and to the Minister for not being present at the beginning of Question Time. I was attending the Joint Committee on Finance, Public Expenditure and Reform meeting with representatives of Ulster Bank and was not aware the time set for Question Time had changed.

I thank the Minister for his response to this priority question and wish the Minister well in the detailed negotiations that will commence on Monday on foot of last week's summit statement. I believe the statement and what hopefully will flow from it to be highly significant for Ireland and this could be extremely helpful in respect of the public finances and Ireland's debt sustainability. Moreover, it has the potential to make easier the fiscal adjustment. The cost of servicing the national debt has grown significantly in recent years and will continue to increase as the stockpile of debt continues to grow. However, if it is possible to secure a better deal in respect of bank debt, it could have highly positive implications. I note the Minister has ruled out the possibility of a deal making any difference to the forthcoming budget next December. However, if the negotiations conclude reasonably quickly and if Ireland secures an overall deal, we may end up with a significantly reduced interest bill in 2013, which would make the budget arithmetic easier. In that context, why is the Minister ruling out the possibility of there being any benefit in respect of the next budget? As the negotiations on this deal are only beginning now, a conclusion could well be reached before the end of the year that could work its way into the budget arithmetic.

5:00 pm

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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If there is any benefit, the Deputy can be assured the Government will take it into account. However, Deputies Michael McGrath and Pearse Doherty are better aware than most Deputies that the Government is dealing with two problems. First, it is dealing with the problem of the debt and second, it is dealing with the problem of the budget. The budget problem is the Government is not collecting enough in taxation to cover what it spends in the provision of services. While that is one problem, there also is the size of the debt, which according to present figures will peak next year at 117% of GDP. It is true the two issues have an influence on each other, that there is a crossover effect and that one reinforces the other. If one is paying a lot of interest on one's debt, it makes one's budget position more difficult. However, even if there was no interest to be paid, the Government still is approximately €14 billion on the wrong side of a balanced budget and this problem must be dealt with as a distinct fiscal problem.

If there are benefits in reduced interest rates, then well and good. However, the timeline is quite long and the European supervisor of banking seems to be the key appointment. That triggers the other elements of the procedure.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I urge the Minister to be highly ambitious on behalf of the Government in the negotiations, given the scale of the capital injection into the Irish banks. If the principle agreed last week to separate bank debt from the sovereign is to be implemented in full, then we have a very strong case for the €64 billion issue to be revisited. The Minister's negotiating position will be supported by Fianna Fáil. We wish him well. This is critical for Ireland. It could certainly be of great benefit to the public finances, the national debt and the economic recovery we want to see. We want the Minister to be highly ambitious and put the entire €64 billion on the table as a starting point.

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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The key element of the communiqué is the sustainability of the Irish programme. That is obviously a clear reference to getting the debt down to a stage where we go back into the markets, and then we are entirely sustainable if we can fund in the markets at low interest rates. If Deputy McGrath puts his accountancy experience to use and thinks of it in terms of a balance sheet, then he will know that it is not really possible to work on one side of the balance sheet. If debt is moved off one side of the balance sheet, what is moved off the other side? We can see how complex it is to get matching collateral that we can shift as well. When the Government put money into the banks, they took the shareholding of the banks as well.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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They can have the banks.

Photo of Michael NoonanMichael Noonan (Minister, Department of Finance; Limerick City, Fine Gael)
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Yes, but we get into values then. Is it nominal value or market value? There will be quite a tricky piece of design work and then a very difficult negotiation phase.