Michael McGrath (Cork South Central, Fianna Fail)
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To ask the Minister for Finance if he or the National Pensions Reserve Fund has examined the implications of the European Stability Mechanism investing in the pillar banks; if he has studied the mechanism by which this may take place; if an up to date valuation of the State's investment in the pillar banks has been prepared; if the joint technical paper with the Troika in respect of the promissory note has been completed; his plans for its publication; the progress that is being made in respect of restructuring the promissory note; the date on which he expects this to be concluded; and if he will make a statement on the matter. [42465/12]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware, the Government has been working extremely hard to secure a deal on the Irish bank debt and detailed work will continue to ensure the positive moves in Europe are harnessed to maximise the benefit to the taxpayer. This remains one of the Government’s key priorities. We will continue to target the reduction of the burden to the State of funding the bank recapitalisation and due consideration is being given to various mechanisms to achieve this goal. On 19 July 2012, the National Pensions Reserve Fund, NPRF, published its annual report. This contained an accounting valuation of the NPRF's ordinary and preference shareholdings in Bank of Ireland and Allied Irish Banks at 31 December 2011. As at 31 December, the NPRF accounting valuation of its investments in Irish banks stood at €8 billion. Its investments in AIB at this date were valued at €6.1 billion comprising preference shares of €2.2 billion and ordinary shares of €3.9 billion. Its investments in Bank of Ireland were valued at €1.9 billion consisting of preference shares of €1.5 billion and ordinary shares valued at €0.4 billion. In addition, the State holds direct equity investments in the Irish Bank Resolution Corporation, IBRC, and Permanent TSB, now separated from Irish Life. The State also invested €3 billion in contingent capital instruments across the banks which are scheduled to be repaid to the State in 2016.

Given that the State may enter discussions on these investments, it would be inappropriate for me at this point to provide further details on any valuation assessment of these instruments. I would acknowledge, however, that since the end of last year, banking shares have rallied strongly across Europe and the share price of Bank of Ireland has benefited from this positive sentiment, rising by 18%.

With regard to the promissory notes, and as previously advised to the house, ongoing discussions with the troika are considering all options for the restructuring of the notes in terms of the source of funding, the duration of the notes, the interest rate applicable.

The very welcome euro area summit statement of 29 June represents a major shift in European policy in terms of breaking the vicious circle between the banks and the sovereign. More recently, with the announcement on 12 September of a single EU banking supervision mechanism, the European Commission President outlined his vision for the banking sector, in which the ECB would be given supervisory powers over all banks in the Union, which is an important step with regard to the ESM and its potential to recapitalise banks.

It is not possible to give guidance on the timing of these negotiations as to do so could impede our ability to achieve the best possible results for the Irish taxpayer, but every effort is being made to expedite the ongoing process.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his reply. I acknowledge two separate channels are open here. One is the possible ESM investment in the banks and the second is the Government's efforts to restructure or re-negotiate the promissory note arrangement in some way. I also recognise the real deadline on this issue is next March, when the next €3.1 billion falls due and when the 2012 €3.1 billion must be refinanced. The Minister will face a €6 billion issue in less than six months time, which is hugely significant for the country.

The promissory note issue is widely misunderstood, by commentators as well as politicians. People speak about the interest rate and the coupon being paid to the IBRC which, in the fullness of time, will be largely irrelevant. The promissory note is essentially being financed by relatively cheap emergency liquidity assistance from the central bank, so restructuring it in the absence of a writedown - which is the preferred option - in a way that would be advantageous to Ireland is not as easy as people make out and I acknowledge this. Its structure is widely misunderstood.

What is actually happening? How are these negotiations taking place? Is it at official level at this point? Are officials going over and back to Frankfurt? How much of the Minister's time is taken up with advancing the promissory note issue? The ECB is clearly the key stakeholder there. Will the ESM investment in AIB and Bank of Ireland be on the agenda of Eurogroup and ECOFIN later this month or possibly the European Council summit in about three weeks' time? I welcome the statement by the President of the European Parliament today but we need to have a re-affirmation from the European leaders of the June summit. We need that re-stated and reiterated this month.

Michael Noonan (Limerick City, Fine Gael)
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Yesterday, President Barroso publicly re-affirmed the Commission's commitment and understanding of the commitment of the 27 Heads of State and Government to that which was agreed and expressed in the communiqué of 29 June 2012. I agree with the Deputy that the promissory note is a complex piece of financial structuring and restructuring it is also complex. Many issues arise but we will work our way through it. The context for negotiation, as in all these matters, is the troika. Of course, the ECB is also independent in the exercise of its functions. For example, I went to Frankfurt and had direct conversations with Mario Draghi some time ago. I also said in reply to an earlier question that I had met with the relevant finance ministers of Paris, Rome and Berlin quite recently. Both issues were the topic of discussions there.

The next ECOFIN and euro group meeting is on Monday and Tuesday in Luxembourg, as is customary for the month of October. There will not be a specific agenda item referring to these matters for Ireland but, of course, I will take the opportunity on the margins of that meeting to engage with various colleagues to whom it would be in our interest to advance the case.

Michael Kitt (Galway East, Fianna Fail)
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Deputy Michael McGrath, briefly.

Michael McGrath (Cork South Central, Fianna Fail)
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When one reads the June summit statement, it seems that the possible investment by the ESM in the pillar banks is some distance away. Not only does the supervisory system need to be up and running, its effectiveness needs to have been tested. That is re-affirmed in the statement by the finance Ministers. I am not sure how much progress the Minister will make on that issue in the short term.

The Minister referred to the promissory note issue. There was talk for a long time about technical paper and talks with the troika. Are we moving to a position where there is an agreed paper between the Government and the troika? Clearly, there are sticking points, which is why it is not progressing as quickly as the Minister would have liked. Are we down to net issues at this stage? Are we getting close to a finality? Is the broad structure of the new arrangement agreed? My question on the promissory notes essentially relates to how much progress has been made.

Michael Kitt (Galway East, Fianna Fail)
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The Minister will give his final reply.

Michael Noonan (Limerick City, Fine Gael)
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Negotiations are ongoing and progress has been made insofar as people are coming to a better understanding of their positions and moving towards a mutual understanding of the situation. In terms of process, we are separating the timeline on the promissory note and recapitalisation of the banks because, as the Deputy said, on 29 June, it was a condition of any direct recapitalisation of banks that the European supervision system would be put in place first. However, from our perspective, when the objective is to get back into the markets at low interest rates, the actual date of the recapitalisation, if and when it comes about, is not the relevant date. What is relevant is the definitive statement that it is going to happen because as soon as that is done, it would be priced in to the cost of Irish paper. As a consequence, we could avail of that. To a large degree, that has already been done. The statement of 29 June was priced in and was interpreted as that in the future, the Irish debt position will be more sustainable. After the Helsinki statement by the three finance Ministers, our nine-year bond went up about 20 basis points and our five-year bond went up about 10 basis points. However, that has all come back so the markets are convinced from the way they are pricing Irish paper that the commitment of 29 June holds. I do not know what is the intention of the Heads of State and Government at the next meeting. I believe it will be made clear that what has been agreed is agreed but I do not know whether that will be formally expressed.