Taoiseach's speech on agreement with the ECB
I wish to make an important announcement for the information of the House.
The Government has met in the last hour to consider a proposal from the Minister for Finance to once and for all remove the Promissory Notes relating to the former Anglo Irish Bank and Irish Nationwide Building Society. This proposal follows the conclusion of discussions between the European Central Bank and the Irish Government.
When Fine Gael and Labour formed a new Government in 2011, we promised to renegotiate the bail-out programme inherited from the previous Government to secure a fairer and more affordable solution to our banking and sovereign debt crises.
In particular, we committed to replacing short-term, emergency Central Bank lending secured against the Promissory Notes used by the previous Government to bail-out the worst Irish banks with longer-term, more affordable financing that reduces the burden on Irish taxpayers and restores confidence among other potential investors in Ireland.
The Promissory Notes represent, in this Government’s view, a highly onerous and unfair legacy of the banking crisis.
Under this Promissory Note arrangement put in place by the previous Government, Irish taxpayers due to pay €3.1 billion next March and every March until 2023, and declining payments until 2031, to cover the massive private losses of Anglo Irish Bank and Irish Nationwide.
Including interest costs, the lifetime cost of the Promissory Note would have been almost €48 billion.
I am pleased to announce that today that Ireland has reached a conclusion to its discussions with the European Central Bank that delivers on our commitment to put in place a fairer and more sustainable arrangement. This is the outcome.
The liquidation of the Irish Bank Resolution Company, as legislated for by the Oireachtas this morning. The remnants of Anglo Irish Bank and Irish Nationwide – stains on our international reputations and dents to our national pride – have now been removed from the financial and political landscape. Their closure bookends a tragic chapter in our country’s history.
The annual Promissory Notes payments are gone. The liquidation this morning caused the Central Bank to assume full ownership of the €25 billion in Promissory Notes and other collateral held as security for the funds provided by the Central Bank to the IBRC.
Under the agreement reached today with the European Central Bank, the Promissory Notes are being exchanged for long term Irish Government bonds with maturities of up to 40 years.
The first principal payment will not now be made until 2038 and the last payment will be made in 2053. The average maturity of the Government bonds will be over 34 years as opposed to the 7 to 8 year average maturity on the Promissory Notes. In effect, we have replaced a short-term, high interest rate overdraft that had to be paid down quickly through more expensive borrowings, with long-term, cheap, interest-only loans.
In addition, by agreement with the ECB, the liquidation of the IBRC has caused the Central Bank to take ownership of the €3.4 billion bond used to settle the promissory note last March.
As a result, there will be a €20 billion reduction in the NTMA’s market borrowing requirements in the next decade as we seek to restore the economy to full employment, and a very large reduction in the debt servicing costs of the State over the next generation.
The average interest rate on the new bonds will begin at just over 3%, compared with an interest rate of well over 8% on the Promissory Notes.
This will result in 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. This means that the expenditure reductions and tax increases will be of the order of €1 billion less to meet the 3% deficit target.
This plan will lead to a substantial improvement in the State’s debt position over time.
Today’s outcome is an historic step on the road to economic recovery. It secures the future financial position of the State by reducing the burden on Irish taxpayers arising from the bail-out of Anglo Irish Bank and Irish Nationwide.
Step-by-step, this Government is undoing the disastrous banking policies that brought this State to the brink of national bankruptcy.
The agreement has reduced Ireland’s vulnerability from the huge debts taken on by Irish taxpayers as a result of the cost of rescuing failed private banks.
Irish citizens can look forward once again with positive expectations. The legacy banking debt hoisted on the Irish taxpayer is a heavy burden. The promissory notes in Anglo Irish Bank and Irish Nationwide served as a millstone around the neck of the Irish taxpayer. This burden served to erode confidence and limit the economy’s ability to grow.
The new plan will likely materially improve perceptions of our debt sustainability in the eyes of potential investors in Ireland, leading lower interest rates and faster growth than would otherwise be the case. A successful Irish exit from the bail-out by the end of this year would prove that a combination of intensive national reform efforts and European solidarity can deliver results.
Let there be no doubt, this is no silver bullet to end all our economic problems. After the catastrophic economic management of the past decade, there is still a long way to travel in our country’s journey back to prosperity and full employment. The damage done by these financial institutions will take many years to rectify.
Even as the lower interest rates resulting with this agreement reduce Ireland’s deficit, a very large and unsustainable gap between Government revenues and spending remains to be fixed – a gap unrelated to our banking crisis. Only we in Ireland can fix this problem by reforming the way our State and country works.
We continue to negotiate to improve other core elements of the onerous bail-out deal inherited from the previous Government. Today, we have secured a vastly better deal on the cost of bailing out Anglo Irish Bank and Irish Nationwide. Tomorrow we continue our efforts to seek European assistance to recover as much taxpayers’ money as possible from the other financial institutions bailed out by the State.
Eurozone leaders, including Chancellor Merkel and President Hollande, have publicly recognized the unique circumstances behind Ireland’s sovereign debt crisis and have mandated the eurogroup to address these issues.
What today shows is that the more Ireland is prepared to help itself, the more others will assist us along the difficult path we still have to travel.
It is a step forward in accelerating our path back to economic recovery and renewed job creation.
It can give us confidence that our goals are achievable, that our hopes are realisable.
It is important to recognise the independent efforts of the Irish Central Bank Governor, his staff and officials from the ECB in securing this agreement. I am confident that it will contribute hugely to the ongoing rebuilding of trust between Irish and European authorities in the management of the banking crisis.
Today’s result has been brought about a strong and determined collective effort by the entire Government. I want to thank the Tanaiste and all Ministers for their contribution to this outcome.
Most of all, I want to publicly thank the Minister for Finance Michael Noonan and his officials for leading these negotiations to a successful conclusion. Their dedicated service to the State in their tireless, persistent and patient work over the past 18th months should be an inspiration to us all.
I commend this agreement to the House.