Stephen Donnelly (Wicklow, Independent)
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Question 103: To ask the Minister for Finance, in view of his earlier implication that the ECB had effectively threatened that there would be consequences if the bond payments due by the former Anglo Irish Bank were not paid and his more recent statement that the threats of increased interest rates or of a turning off of the tap of liquidity to the banking system were never explicitly made, if he will give details of his fears were the next bond due to Anglo Irish Bank bondholders, of €1.25 billion, due in January, to not be paid; and the stages in which this might happen. [34879/11]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware it has always been my position in relation to the payment of unguaranteed unsecured senior bonds that, given the significant cost of IBRC, to the Irish State and the Irish taxpayer, that the burden of debt should be shared with the bondholders. However, if we were to suspend payments to creditors in IBRC this would have a significant impact on both the bank and ultimately the State. This senior debt, unsecured as it is, is an obligation of the bank. If the bank does not meet such obligations it would lead to a default and following that, most likely, insolvency. Insolvency would result in a significant increase in the cost to the State to resolve IBRC.

As I stated after my meeting with ECB President Trichet and Commissioner Rehn last month, our European partners expressed strong reservations about burden sharing with senior bond holders in IBRC. Mr Trichet voiced his opinion that he is against such actions for two reasons:

· Firstly private sector involvement carries very significant contagion risk and may be inconsistent with encouraging private investors to return to markets.

· Secondly, he said Ireland had done particularly well over the summer. He mentioned the narrowing of bond spreads and he said that he felt that anything to do with senior debt burden sharing might knock the confidence of the market in the absolute commitment of the government to take once again its place in normally functioning markets; as a result bond yields could widen again and we would lose the ground we had gained.

Mr. Trichet's views were echoed by Commissioner Rehn. The positive international commentary on Ireland has been created by the Government's successful renegotiation of the Memorandum of Understanding, the introduction of the Jobs Initiative, the sizeable reduction of the interest rate on the EU IMF Programme and the reduction in the cost of the banks to the taxpayer.

The value of support, present and future, we receive from our European partners far outweighs any short term gain from imposing burden sharing on these bonds in the face of European opposition to such a move. For example, circa €110 billion of funding is provided by the ECB and the Central Bank of Ireland to the Irish Banks at a cost below which they could borrow in the market. This is in addition to the €85 billion set out in the Programme with the Troika.

We still have unfinished business with our partners to find the most cost effective way of resolving IBRC over the long term. The Government's aim is to ensure that the overall cost of resolving IBRC and the costs of resolving the difficulties in the banking sector generally are kept to a minimum. I will consider the future payment of maturing bonds in IBRC in this context and in terms of what is best for the overall position of the State.

However, I can make it very clear that Irish credit institutions access ECB liquidity under the same rules and subject to the same conditions as credit institutions around Europe. Clearly the ECB has given very large amounts of liquidity assistance to Irish banks and it maintains a keen interest in the Irish banking sector. In this regard, I would point to the statement of the ECB on 31 March last to the effect that against the background of the recapitalisation of the banks "the Eurosystem will continue to provide liquidity to banks in Ireland". Together with other decisions announced on this date, the ECB was and is clear about its support for Irish banks.