Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I have heard Sinn Féin's criticism that the Government did not demand a repudiation of the promissory notes. However, as Sinn Féin knows from its experience during the Good Friday Agreement negotiations, it is pointless sticking rigidly to a position that will prevent an agreement which is in everyone?s interests. Sinn Féin knows that full well as the party showed through its negotiating realism in not demanding a united Ireland as a precondition in the Good Friday Agreement talks. This is yet another example of how Sinn Féin speaks differently on this side of the Border to what it does north of it.

There are some in this House who seem determined to follow the policy of default no matter what the consequences for those reliant on the State. The reality is that the promissory notes have been part of the general Government debt since they were issued in March 2010. They can be seen in all national and European statistical releases since then. Therefore, a non-payment would have been, in effect, a default. I and many others have detailed the dire consequences for all citizens of such a policy of default and I do not propose to repeat them today.

It is worthwhile to revisit the origins of the promissory notes. The concept of the promissory note was born out of the need to provide IBRC and other institutions with sufficient capital. In order to minimise the impact that would have had on Exchequer borrowing, a promissory note was issued to IBRC instead of Government bonds. The promissory notes were by their nature and structure unsatisfactory. From the State?s perspective the high interest rate and the amortising repayment schedule placed a considerable burden on the State?s resources, particularly at a time when the current deficit has to be addressed.

In addition, they required fortnightly approval for collateral purposes from the Central Bank and the European Central Bank, thus creating a long-term structural liquidity issue for the banking sector as a whole. From both the Central Bank's and the ECB?s viewpoint the use of exceptional liquidity assistance, ELA, for long-term funding to pillar banks was also problematic. Exceptional liquidity assistance was only ever intended to be a temporary funding arrangement. There is little to be achieved in revisiting the decisions taken by the previous Government on the banking crisis. Suffice it to say that on coming into office the Government inherited an extremely complex set of problems that it had to address.

The Government has taken considerable steps to stabilise and restructure the banking sector, which have been the subject of many debates in the House. In spite of calls on the Government to adopt an aggressive approach in negotiations with our external partners, the Government recognised from an early stage that any comprehensive, sustainable solution to our problems, including our banking problems, had to be addressed in the context of an overall European solution. We have worked hard to rebuild Ireland?s reputation in Europe and to build momentum behind proposals that are in the interests of Ireland and the European Union as a whole.

It was clear to the Government that the co-operation and support of European and international partners was essential to reach a solution that is in all our interests. The Government has always set out clearly that it would not act unilaterally and that it would be bound by agreements entered into by it and previous Governments. If Ireland is to remain attractive to investors, the State must abide by sovereign commitments, no matter which Government made them. Our strategy has and is paying real dividends and the recent announcement is a major step in regaining our economic independence through improving the affordability of our debt position and reducing our debt-servicing costs.

We have been seeking and will continue to seek a comprehensive solution to the remaining structural and funding issues in the banking sector. Our discussions always had two distinct but related elements. First, the structural funding issue in the banking system, particularly the exceptional liquidity assistance in IBRC, which has now been resolved. Second, the matter of investments in the going-concern banks, including AIB, Bank of Ireland and Permanent TSB.

In recent months it has become evident that the complexity of issues around the establishment of the European single supervisory mechanism would impact on the timeframe for achieving a comprehensive solution. It was decided in that context to progress the situation on the promissory notes as an initial step, and to seek an adjustment of the terms which underpin the punitive promissory notes arrangements. Notwithstanding that, we will continue to participate in the development of the ESM and the structuring of the single supervisory mechanism to ensure that Ireland will benefit, on similar terms to other member states, from developments in this regard.

To be blunt, the promissory notes have been resolved to the satisfaction of the Government and the great majority of Members in this House and the other House, but we are absolutely aware of the other part of the equation, which is to put in place and seek support from the ESM on legacy bank debt. Two important statements stand out for us. The first is the decision of 29 June 2012 by the Heads of Government where a clear distinction was made between sovereign debt and banking debt, and in the same paragraph the reference to the well-performing Irish programme. Of importance also was the commitment made by President Hollande and Chancellor Merkel who recognised that our situation is unique and different and issues remain to be resolved in terms of the other part of the banking debt, namely, the amounts of money that had to be used to recapitalise and prop up our banks. The Government is conscious of that. Progress is being made in that regard but it is a medium-term strategy because in order for the ESM to be the vehicle through which recapitalisation can occur, and where our issue can be addressed, we must get in place the single supervisory banking mechanism. That is a key part of the Presidency negotiations. The other two parts of the strategy are some form of agreement on how we deal with bank resolution and also what kind of deposit interest scheme we must put in place.

As I indicated to the House on previous occasions, the key aspect is to replicate effectively what the Federal Reserve has across the United States of America. Europe needs a single supervisory system, in particular for the 17 member states of the European Union that use the euro. Europe needs the same reserve the Federal Reserve has in the United States of America to deal with banks that collapse. That is another policy instrument that clearly was not there at the time of the collapse which must be put in place as part and parcel of the recovery programme which will be so important across the European Union.

In response to Senator Barrett's point about the implications, I will go through them because it is important that I put on record where we stand. Therevised arrangement on the promissory notes is a major step forward in the restructuring of the banking sector, strengthening the position of the Central Bank and reducing our borrowing requirement and debt-servicing costs. Those benefits, when coupled with making the necessary adjustments in line with our commitments under the programme of financial assistance, will serve to enhance Ireland?s reputation. The decision re-establishes long-term stability for a large part of the banking system for the first time since the start of the banking crisis. The exceptional liquidity assistance which was provided to IBRC, and is inherently short term, costly and unstable, is removed.

It is clear that all parties to the current arrangements have something to gain from the discussions and from an agreed approach to the restructuring of this issue. The key objective of any new arrangement was to make the banking-related debt more sustainable in the long run.

The improved debt sustainability of the new arrangement is testament to the effort and focus of the Irish parties in this matter and to the benefits of the constructive and consensual approach taken with our European partners.

The ¤3.1 billion repayment due on 31 March each year served as a constant reminder of the devastating impact that Anglo Irish Bank and Irish Nationwide had on the Irish economy. The passing by the Oireachtas of last week's Act means that IBRC, the former Anglo Irish Bank and Irish Nationwide, will be removed from the financial landscape. The IBRC promissory notes of which the Central Bank of Ireland has assumed full economic and legal ownership will now be exchanged for a portfolio of long dated Government bonds with a maturity up to 40 years. Over half of all the banking related debt will now be pushed out over 40 years and its burden on this economy will be significantly lightened.

The principal benefits from this arrangement are that the promissory notes are gone, they will be exchanged for long term Government bonds. The maturity of the bonds will have significant benefits from a market perspective as it ensures the liability to repay is beyond most credit investors' time horizon. There will be a reduction in the State's general Government deficit of approximately ¤1 billion per annum over the coming years, which will bring us ¤1 billion closer to attaining our 3% deficit target by 2015. Furthermore, a significant element of the interest payments on the Government bonds, which will now be held by the Irish Central Bank, will ultimately be returned to the Exchequer in the form of Central Bank dividends. The State will borrow ¤20 billion less over the next ten years due to the cash-flow benefit of this arrangement, and next year the cash-flow benefit will be ¤2.3 billion excluding initial transaction costs. This arrangement will lead to a substantial improvement in the State's debt position over time and the housing of all the wind-down assets in one entity, NAMA, will result in just one wind-down vehicle.

The decisions announced over the past week involved the following key steps: the liquidation of IBRC, by way of legislation; the assumption by the Central Bank of Ireland of full economic and legal ownership of the promissory notes and all other collateral held as security for funds provided by the Central Bank under various liquidity arrangements; the exchange of the promissory notes in the hands of the Central Bank for long-term Government bonds, with maturities of up to 40 years; and the issuing on Friday of Government bonds that will pay interest every six months based on the six month Euribor interest rate, which stood at 0.369% today, plus an interest margin, which averages 2.63% across the eight issues. This interest rate is certainly at the better end of our expectations last week. All remaining debt of IBRC to the Central Bank which is secured by a floating charge over the assets has been acquired by NAMA from the Central Bank in return for NAMA bonds.

In recent days there has been media speculation on a supposed "fire sale" of the assets of IBRC. I can provide the House with some comfort in this regard. Put simply, this will not happen. As part of the role of the liquidators, the assets of IBRC will be valued independently before being sold. Any assets not sold to third parties at or above the valuation price will be sold to NAMA at the independent valuation. This ensures a floor price on the assets of IBRC and that where required, assets with limited sale potential can be worked through in the medium-term by NAMA rather than sold to the best available third party at any price.

This Government's approach is consistent and focused on the best outcome for the Irish State and its people as result of attaining yields from this asset. The success of our programme implementation to date has been recognised by the financial markets. Our ten year bond yields have remained below 6% for a number of months. This morning they were at 3.8% and last week they were at 4.1%. These are extraordinary movements in a ten year bond rate in such a short period of time; when we first came into government they were at 15%. The blended rate we were lent money from the two EU funds is about 3.3%, we are only 0.5% from full market return. Once we are below the blended European rates, there is no point holding on to the troika because we can borrow independently. In circumstances where 0.1% is seen as a seismic change in the cost of Government debt, to see such a reduction is extraordinary.

These collective actions represent a major improvement in Ireland's position. We have demonstrated in terms of the promissory notes the value of what can be gained from a carefully managed and sustained engagement: the maximum benefit for Ireland. The Government and the people of this country are determined to recover our economic independence, to recover our pride and self-belief and to create a present and a future free from the excesses of the past and the burdens placed by the few on the citizens of the State.

In bringing these discussions to a successful conclusion, I would like to acknowledge on the record of the House first and foremost the stewardship of the Minister for Finance and the work of the officials of the Department of Finance. The Department of Finance has had a difficult history of late given the crash but it has shown in its negotiating skills the best of the Irish public service. The forging of this agreement is as much down to their persistence and professionalism as it is to the political work of the Minister on behalf of the Government.

I commend the agreement to the House and look forward to its support in the work it does in the years ahead.