Gerry Horkan (Fianna Fail) | Oireachtas source

If I had an appearance to cancel, I would cancel it.

Fianna Fáil supports the Single Resolution Board (Loan Facility Agreement) Bill 2016, which is very technical legislation to put in place a bridge-financing mechanism in the form of national credit lines that would be available as a last resort for the Single Resolution Fund in the event of a large bank resolution before the full size of the fund is reached. It is as much an interim measure as anything else. While the Single Resolution Mechanism, SRM, may prevent a recurrence of the events of 2008 to 2011, when huge bank losses were effectively heaped on the Irish taxpayer as a result of the insistence of the ECB, there is still the outstanding issue of who will ultimately bear the cost of the last banking collapse. The EU deal June 2012 has not delivered for Ireland as of yet. Our Government must take the message back to Europe that everything is not fine in Ireland that we need a deal on our bank debt that can ultimately be felt in the pockets of ordinary Irish citizens.

If the European Heads of State are true to their word, they would facilitate retrospective recapitalisation of the banks. It would be an acknowledgement that Ireland has not just a practical case for relief on the bank debt but also a moral case. As the Taoiseach himself has acknowledged, the European position was imposed on us. It is now four years since that commitment was made.

The viability of the banking system could also be helped by moving loss-making tracker mortgages into a fund with a stable source of funding from the ECB. This would not affect customers but would help the banks to return to normal banking.

With regard to the Single Resolution Fund, during the euro crisis shareholders and junior bondholders did absorb losses but senior bondholders and uninsured depositors were generally spared at the insistence of the ECB. That has changed with the bank recovery and resolution directive coming into force. Taxpayers will no longer automatically safeguard senior bonds and big deposits made by large companies.

The Single Resolution Fund to finance the restructuring of failing credit institutions was established as an essential part of the SRM. The total target size of the fund will equate to at least 1% of the covered deposits of all banks in member states, ultimately amounting to €55 billion. The United Kingdom and Sweden have opted out. The European Union has stated efforts could be initiated to foster further cross-border consolidation within the euro area. Ultimately, the euro area economy needs banks that are large and efficient enough to operate and diversify risk on a cross-border basis within a European Single Market but small enough to be resolved with the resources of the Single Resolution Fund.

On the extent of the bank debt, the total outlay of funds by the Irish Government on the banking sector was €64 billion, which is approximately 40% of current GDP. About half of these outlays were financed by promissory notes that have now been converted into long-term bonds. The other half was financed with direct expenditures of public money. There are no specified public day issues that can be directly associated with these expenditures. The Euro Area Summit Statement, issued in June 2012, pledged to examine the circumstances of the Irish financial sector with a view to "further improving the sustainability of the well-performing adjustment programme".As of yet the Eurogroup has made no explicit statement about undertaking an examination of Ireland's situation. In this sense the June 2012 commitment has not been met. The truth is that while the EU agreement appeared significant on the surface at the time, it was dramatically oversold by the Government. No sooner was the ink dry on the summit communiquéwhen some of the more powerful eurozone countries were putting an entirely different spin on what was actually agreed.

The reference to specifically examining the Irish financial sector has not resulted in one cent of the €30 billion injected by Ireland to save AIB, Bank of Ireland and Permanent TSB being refunded by the EU. The Government leaders here were in such a rush to go further than each other in welcoming the agreement that they did not secure anything in the agreement to deliver with certainty a tangible and measurable deal to make our debt more sustainable and help Irish citizens.

Two years on, a deal on the retroactive bank recapitalisation seems as far away as ever. It is not clear exactly what we are looking for. The Minister for Finance, Deputy Noonan, has refused to say whether he wants to dispose of some of the State shareholdings in the banks and the European Stability Mechanism or at what valuation. The Minister has even refused to commit to applying for a bank debt deal when the formal application process opens in November. At this stage, there is hardly a serious commentator left who believes the Government will get the deal it was in such a rush to promise two years ago.

Putting in place the arrangements for banking union is an effective prerequisite for any retroactive deal on the banking union. The fundamental principle underpinning the banking union three-pillar approach, made up of the single supervisory mechanism, the single resolution authority and the deposit guarantee scheme, is to end the taxpayer bailout of banks. The key legislation, the bank resolution and recovery directive, known as BRRD, deals with the hierarchy of creditors. It envisages losses on shareholders, unsecured creditors, including junior and senior bondholders, and potentially deposits of over €100,000. A minimum bail-in equating to 8% of total liabilities must be invoked before resolution or national funds can be used.

It is also important to remember that the Irish banks have been recapitalised. They do not need new capital from the ESM. It is the Irish State that really needs the money. In simple terms, the Government should clarify if the State is looking to sell its stake in the banks to the ESM and whether it will be insisting that this is done at the price they were taken on to the books of the State rather than the current market value. In the case of AIB and EBS, that value was €20.7 billion, for Bank of Ireland it was €4.7 billion and for Irish Life and Permanent the figure is €4 billion. This comes to a total of €29.4 billion.

There are arguments in favour of the ESM purchasing the banks or portions of the banks. The June 2012 summit statement mentioned both the ESM recapitalisation and examining Ireland's debt sustainability within the same paragraph. While the two were not explicitly linked, it is fair to say that a reasonable interpretation of the statement was that ESM recapitalisation could be used for Ireland. The sentence "Similar cases will be treated equally." in the June 2012 statement directly follows a sentence about Ireland. A reasonable interpretation of this sentence is that Ireland should not lose out because ESM recapitalisation was unavailable when the Irish banks failed. Allowing the ESM to provide funds to banks in other countries while ignoring Ireland would be incompatible with this commitment to similar treatment.

The June 2012 statement calls on the Eurogroup to examine Ireland's situation. As of yet, the Eurogroup has taken no action on this matter. The membership of the Eurogroup is effectively the same as the membership of the ESM board. Again, this points to a reasonable expectation that what was intended in June 2012 was for the ESM to approve purchases of some of the financial institutions owned by the Irish State.

While the Irish economy is now performing well and Irish bond yields are low, there is little doubt that during 2010 the Irish banking sector represented a threat to the euro area financial system. That type of threat would now trigger an ESM intervention given that the capacity of the Irish State to take on the debts of the banking system was seriously questioned. In 2010 and 2011, however, the Government agreed to use State funds alone to stabilise the banking sector. Again, fairness and the principle of equal treatment would argue for the use of ESM funds to compensate Ireland.

We support this mechanism. We support the additional measures in terms of fraud and so on. However, the Government, on behalf of the State, needs to go back to the statements made and championed at the time as being a way out of some of the difficulties. We need to have some indication from those in the Government that it is going to pursue the matters they were so keen to tell us about in 2012.