Finance: Benefits to Taxpayer following renegotiations at EU/IMF/ECB Level 20th March 2013

20th March 2013 - Bernard Durkan TD

DÁIL QUESTION

NO 189 and 190

To ask the Minister for Finance if he will outline the full extent of benefits achieved for the Irish taxpayer and the Exchequer arising from various renegotiations at EU/ECB/IMF level in respect of the bailout, banking guarantee and or other legacy debts inherited from his predecessors; and if he will make a statement on the matter.

– Bernard J. Durkan.

* For WRITTEN answer on Wednesday, 20th March, 2013.

Ref No: 14248/13

To ask the Minister for Finance the extend to which he expects to be in a position to negotiate further discounts or restructuring of Ireland’s debt at EU Level; and if he will make a statement on the matter.

– Bernard J. Durkan.

* For WRITTEN answer on Wednesday, 20th March, 2013.

Ref No: 14249/13

REPLY

Minister for Finance ( Mr Noonan) : Ireland’s EU-IMF programme provides for total funding of €85 billion, made up of €17.5 billion from our own resources, and €67.5 billion from EU facilities, the IMF and bilateral loans. There are quarterly reviews of programme implementation, and we have met all our target for these review to date. Our programme is therefore well performing and we are now well on our way to exit it.

We have used these quarterly reviews to renegotiate various aspects of the programme. By way of example, we reversed the reduction in the minimum wage, and also agreed a more progressive use of the proceeds from the sale of state assets.

A series of measures have already been put in place since early 2011 which serve to significantly reduce the cost and negative impact of Ireland’s EU/IMF programme. As I noted in my reply to your Parliamentary Question No. 94 of November 15th 2012, the interest rates on EU funding mechanisms (the EFSF and EFSM) were reduced significantly in 2011 and are now provided at rates close to the cost of funding. These rates apply equally to all countries availing of these mechanisms. The maturities of these loans were extended at the same time.

Lengthening of maturities provides benefits in terms of phasing of loans and ensuring that the profile of redemptions is more orderly €“ avoiding as far as possible exceptionally large amounts in particular years. By contrast, money borrowed at longer maturities is generally more expensive. However, on balance, savings arising from maturity extension are significant though complex to calculate.

The interest rate reductions for the EFSF and the EFSM have also been reflected in the rates charged on Ireland’s bilateral loans from the UK, Sweden and Denmark. It is estimated that the interest rate reductions on the EU funding mechanisms and the bilateral loans are worth of the order of €9 billion over the initially envisaged 7 ½ year term of these loans.

The positive impact of these changes has been significant as demonstrated by the fact that the average interest rate charged on our programme borrowing at the outset of the programme in 2010 was 5.82 per cent, whereas by end-December 2012, the NTMA has estimated that the all-in fixed euro equivalent cost of loans received under the EU/IMF programme was 3.36 per cent.

As noted above, our EU programme funding is being provided at, or close to, the cost of funds for the lenders. The scope for further changes to our programme interest payments is therefore very limited.

On 29th June 2012 the Euro Area Heads of State or Government (HoSG) agreed that ” €¦ it is imperative to break the vicious circle between banks and sovereigns”. The same statement also made explicit reference Ireland, noting the need to further improve “the sustainability of the well-performing adjustment programme”. This commitment was reaffirmed by the European Council in December, which also mandated the completion of the operational framework for the ESM direct banking recapitalisation facility in the first semester of 2013. Work is continuing at technical, senior official and Ministerial levels to complete work on the European Stability Mechanism’s direct banking recapitalisation facility by June of this year in accordance with the mandate of the European Council.

Ireland’s position is that it is essential that the measures introduced for direct banking recapitalisation achieve the object of breaking the link between the sovereign and the banks €“ as agreed by the HoSG on 29th June last year and confirmed last December.

In February this year the Government announced a solution to the Promissory Notes in IBRC (formerly Anglo Irish Bank & Irish Nationwide). The Promissory Notes were replaced with a series of long term, low interest Government bonds (average length of 34 years) and the liquidation of IBRC. This generated real and tangible economic and financial benefits to the State, and will improve the long term viability of the Irish financial system and assist our return to the international financial markets.

As a result of this solution, €3.1 billion will not be paid this month and the arrangement also covers the repayment of €3.1 billion that was due to Bank of Ireland following last year’s arrangement. It will deliver a cash-flow benefit of €20 billion over the next 10 years, as well as reducing the deficit by €1 billion per annum over the coming years. It also generates significant efficiency benefits from moving assets to NAMA.

In addition, the Government announced the ending of the Eligible Liabilities Guarantee Scheme for new liabilities after the 28th of March 2013. This marks an additional significant step in the normalization of our banking system and reduces substantially the associated contingent liability of the State.

EU Finance Ministers at Eurogroup and ECOFIN on 4/5 March 2012 discussed an adjustment of the maturities on the EFSF and EFSM loans to Ireland and Portugal in order to smooth the debt redemption profiles of both countries. They agreed to ask the Troika to come forward with a proposal for their best possible option for both Ireland and Portugal for EFSF and EFSM loans. In addition, on Saturday last, 13 March, Eurogroup Finance Ministers agreed to an adjustment of the maturities of Ireland’s (and Portugal’s) EFSF loans.

Work is continuing at official level on the adjustment of the maturities for Ireland and Portugal. In the case of the EFSM loans, this will require discussion and agreement of the EU 27 Finance Ministers, and I expect this matter will be discussed at the April meeting of EU Finance Ministers in Dublin.

The success of our overall approach to date is illustrated by the NTMA’s highly successful sale of €5 billion in ten year bonds last week. We are now in the final year of our programme of support, and the Government will continue to seek improvements in our programme conditions appropriate to ensure we exit durably and successfully.

Bernard Durkan TD

Kildare North

Bernard J Durkan is the Fine Gael spokesperson on Public Expenditure, NDP Delivery and Reform. Originally from Killasser, Co Mayo,…

Finance: Benefits to Taxpayer following renegotiations at EU/IMF/ECB Level 20th March 2013

Bernard Durkan TD

Related news

Sinn Féin reach new low exploiting Covid diagnosis in Dáil vote

Agency should be tasked with monitoring alleged price gouging by service providers – Durkan

Questions remain about National Lottery’s new 'must-win' prize game – Durkan