Dáil debates

Wednesday, 26 September 2012

Topical Issue Debate

Banks Recapitalisation

2:55 pm

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I thank the Ceann Comhairle for selecting this important issue for debate. The statement last night by the Finance Ministers of Germany, the Netherlands and Finland can only be seen as a major setback to the efforts to secure an overall deal on this country's bank debt. It is all very fine for the Taoiseach to insist that the summit statement from last June still stands, but that is no good to Ireland unless it is implemented. The bottom line is that the June summit agreement will not be implemented without the support of the Germans, Dutch and Finns. That is why we must treat last night's statement with extreme seriousness.

The noises coming from Berlin, in particular, have not been favourable for some time. Last month the German Finance Minister, Mr. Wolfgang Schäuble, indicated that Germany would oppose any Irish debt-relief proposal which would, in its view, send a negative signal to financial markets. Earlier this month the Chancellor, Mrs. Angela Merkel, expressed the view that Ireland was on a good path to recovery and she saw no need for changes to the bailout programme. If the statement issued by the three Finance Ministers last night accurately reflects the current views of the German, Dutch and Finnish Governments, it is devastating news for Ireland. A failure to do a deal on bank debt changes everything. Such a failure jeopardises our ability to exit the bailout and return to the markets. It means tougher budgets in the years ahead. Above all, it means that Ireland's debt position will become unsustainable in the absence of economic growth.

The statement sets out the position that direct European Stability Mechanism, ESM, recapitalisation can only take place once the "single supervisory mechanism is established and its effectiveness has been determined". Although we more or less knew this to be the case, it underlines the fact that a timely deal is unlikely. The statement indicates that while the ESM may take direct responsibility for problems that occur under the new supervision regime, legacy assets should remain the responsibility of national authorities. That is the key issue, as well as the stipulation that recapitalisation should occur using estimated real economic values. In other words, there will be no free lunch from the ESM.

What most concerns me is the impression among our European colleagues that everything is fine in this country, that we are back in the markets, meeting all the requirements under the bailout programme and ticking all the boxes. We must offer our colleagues a more honest assessment of where we are at. Such an assessment would acknowledge that day-to-day life for many Irish people is miserable because of the prevailing economic conditions. Without a deal on bank debt, the prospects for recovery will be nowhere near as favourable as they could be. That is the bottom line.

Last March the Minister for Finance, Deputy Michael Noonan, while on a visit to the United States, said that if the world economy were to pick up, the Irish economy would take off like a rocket. Unfortunately, the world economy has not revived and the Irish economy has not taken off like a rocket. In fact, the domestic economy continues to shrink. I am all for speaking positively about the economy, but all such talk must be grounded in reality. In May the Minister told a Bloomberg economic summit that the economy was in a much better position now than it was last year. That is not borne out by the statistics for unemployment, emigration, projected economic growth and tax receipts. In recent months, for example, tax receipts have been below what they were in the same period last year.

Will the Minister give his honest response to what was said last night? Is he disappointed by it? Where does it leave us in terms of negotiating and securing an overall deal on bank debt? I accept that he is genuinely seeking to secure such a deal, as evidenced by his travels to the various European capitals to meet his ministerial counterparts. However, we must call a spade a spade and acknowledge that last night's statement is a major setback. I look forward to hearing the Minister's honest assessment of the situation.

3:05 pm

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I welcome the opportunity to reply to Deputy McGrath. The Deputy should speak with a certain amount of modesty because all of the renegotiation being conducted by the Government on the bailout programme amounts to a series of attempts to unwind the deal made by the Fianna Fáil-led Government which got us into difficulty in the first instance. It made all the arrangements for the bailout and recapitalisation of the banks which we are now trying to unwind. There is also a danger that the Deputy will fall into the Sinn Féin trap-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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There is no fear of that.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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-----of wishing the Government to fail in order that the Fianna Fáil Party can have a political opportunity to rebuild.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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That is not the case.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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That is a trap he should avoid as it will not get him anywhere.


I have noted yesterday's statement by three finance Ministers from Germany, the Netherlands and Finland. The statement addresses issues already decided upon by eurozone leaders when they met in Brussels on 29 June. As the Taoiseach set out this morning, the Heads of State and Government made two important decisions on 29 June, the first of which was to "affirm that it is imperative to break the vicious circle between banks and sovereigns." The second, which related specifically to Ireland, was the following:

The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.
I emphasise the reference to equal treatment.


Since that date, work has been proceeding on both of these elements. Officials from my Department have travelled to several capitals. I travelled to Paris, Berlin, Rome and on to the informal ECOFIN meeting in Cyprus two weeks ago, during which I had constructive talks with my colleagues. The Taoiseach met with several colleagues last week in Rome and all agreed that the imperative is to move ahead urgently to implement all of the important decisions taken on 29 June. I also draw the attention of the House to comments from the European Commission this morning, which set out that the agreement of 29 June was clear regarding the European Stability Mechanism and breaking the "vicious cycle" between sovereign and banking debt.


We are engaged in a diplomatic offensive to implement the decision of 29June to break the link between banks and the sovereign and enhance the sustainability of our debt. I acknowledge that the three Ministers and their officials whom I met in their capitals, as well as other EU finance Ministers, have been helpful in moving forward the technical discussions with the troika, namely, the European Central Bank, the European Commission and the International Monetary Fund, on the banking debt issue in respect of Irish needs.


It is in the nature of EU business that differences of interpretation may arise. However, one thing is clear - the principle of breaking the link between sovereigns and banks has been agreed by the Heads of State and Government. No one has questioned this. That being so, our ambassadors in the relevant capitals and senior officials in Dublin are today urgently making contact to follow up on developments.


This morning, a number of Deputies were disingenuous in attributing statements to my Department. As those who read the statement from the three finance Ministers will have seen, they made reference to the recent positive reviews of the Irish and Portuguese EU-IMF programmes, which is welcome. The strong implementation of reforms is one of the reasons Ireland's global reputation has improved so significantly and has led to record levels of foreign investment in the State. The Government is committed to restoring confidence at home and internationally and the recognition by the three Ministers of the sacrifices that the Irish people have made should be welcomed.


Ireland will be fully engaged in the process by the euro group and Heads of State and Government on how this will happen. In putting forward our ideas, we must be conscious that other member states will also put forward their proposals. However, as was pointed out by the Taoiseach this morning and my Department yesterday afternoon, Ireland's position is clear in this regard. Work is continuing in line with the summit agreement of 29 June to break the link between banks and sovereigns and on the principle that similar cases will be treated equally. As I stated, the European Commission reinforced this point this morning.


It is worth pointing out that the Taoiseach, the Tánaiste and I, along with ambassadors and senior officials, have been vocal in our view that the vicious cycle between banking and sovereign debt should be broken. I remind the Deputy of the letter the Taoiseach sent to his fellow leaders earlier this year setting out the Government's position. We want to continue to work in a constructive spirit to enhance the sustainability of our debt. We have made strong, solid progress in implementing the terms of our EU-IMF programme and have lived up to all of our commitments. The financial markets have recognised this, as reflected in the reduction of our bond spreads in recent months. To be clear, Heads of State and Government made a decision on these issues and we continue to work within that framework to deliver the best possible outcome for the Irish taxpayer.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his response. I will ignore the political swipe he made, which sounds rather tired at this stage, and focus instead on the substance of the issue. He referred to differences of interpretation. What we read last night from the finance Ministers of Germany, the Netherlands and Finland was not a new interpretation of the summit statement from the end of June. The three Ministers rewrote the statement and made fundamental changes which are, without question, to Ireland's disadvantage. That is the nub of the issue, but the Minister appears to be in denial and gives the impression that last night's statement was not significant. In fact, it marked a shift in position. If the statement of the three finance Ministers reflects the views of their respective Governments, it is an extremely serious matter. Either the Minister does not recognise that or he does not wish to admit it. I want to have an open and honest debate on the issue.

The Minister referred to the reduction in bond spreads in recent months. This is a positive development and the National Treasury Management Agency has made good progress in this regard. However, the reduction has been connected in no small part to the summit statement issued at the end of June. The markets have priced in that Ireland will secure a deal on its banking debt. This progress will be reversed, as we saw today, if it appears the deal struck at the summit will not be implemented. The fundamental issue is whether countries will be treated equally. According to the statement issued last night, countries would not be treated equally for reasons of timing because Ireland has recapitalised its banks whereas countries such as Spain have not yet done so. We need to address that issue.

I ask the Minister to set out what milestones lie ahead. Where is all of this going? We know it will take some time to establish the new European banking supervisory body. What level of engagement is taking place between the Minister and his officials and our European colleagues? Will he raise the issues referred to in last night's statement directly with his colleagues in the euro group? Will they be raised at Heads of State and Government level? Will clarification be provided on whether all Governments remain resolutely committed to the principles enshrined in the statement issued following the June summit? What action will the Government take in response to last night's statement?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The Deputy may be tired of what he describes as political swipes, but when he and his leader get up on a rhetorical and moral high horse and lecture us on the way we are renegotiating, it is valid to point out that what we are renegotiating is the bad deal entered into by the Fianna Fáil-led Government.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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We are seeking parliamentary accountability.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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That is what we are doing so a little modesty would not go astray. I presume the Deputy saw the statement issued by the European Commission this morning. I will quote Mr. Olivier Bailly, a Commission spokesman, who stated at a media briefing that eurozone Governments should move "quickly" to break the link between bank troubles and sovereign debt. The agreement reached in June by eurozone governments was, Mr. Bailly said, "extremely clear" in expressing a determination to sever this tie. "Our position regarding breaking the vicious circle between the banks and the sovereign is very clear," he said. "We already showed our determination that for us, this should be done quickly." The Commission, speaking for the whole Community rather than three Governments, is setting out the position, which is the position that was in the communiqué issued at the Heads of State and Government meeting on 29 June.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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In that case, last night's statement is irrelevant.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Nothing is irrelevant; everybody is advancing negotiating positions. However, there are 27 countries in the European Community and a spokesman for the Commission, which speaks for the Community, stated this morning that the policy remains the same as that outlined at the Heads of State and Government meeting of 29 June. He also noted that member states should move quickly to implement this policy. That is the position.


On the general effect, the Deputy used words to the effect that last night's statement represented a major démarche by the three countries in question. The markets are not taking it that way. Irish bond spreads went out by 20 basis points today. Given that they can rise by ten or 15 points in a normal day, 20 basis points is not an extreme reaction by the markets. Spanish bond prices went out by 40 basis points, which is not dramatic for Spain because there is movement every day. It is not that what was said was irrelevant - it is significant and everything must be taken into account - but in the broader scheme of things, it was a statement issued following a meeting in Helsinki attended by three Finance Ministers.

Obviously we take note of it and it goes into the mix of negotiation. However, there are other views. The view outlined by the Commission is the view expressed by the Taoiseach here this morning. That is the official position of the Community. We will see how these matters work out as the weeks go by. The European decision-making process is always a bit untidy. Anytime one has to get 27 governments to agree, it never runs in straight lines. We must take the statement for what it is. It was made, we know what it contains and one can measure its effect as the days go by. So far today, it has not dislodged the Commission from restating the position as stated by the European Council on 29 June and the markets have more or less taken it in their stride. The markets move every day but the movement today was relatively small.