Here are some extracts from an excellent contribution by Peter Mathews TD (FG) from yesterday's topical debates in the Dail (full record available here). This was comprehensively overlooked in the media reporting which focused solely on the non-event (save for Vincent Browne's questions) of the Torika 'approving' Ireland's 'progress'. My comments in italics.
Deputy Peter Mathews:
Next
Wednesday, 25 January, is the due date for the redemption of a bond issued
originally by Anglo Irish Bank Corporation, now the Irish Bank Resolution
Corporation.
We are at an
important financial crossroads in the history of our country. Anglo Irish Bank has been insolvent and
supported by financial engineering, promissory notes and the emergency
liquidity assistance of the European Central Bank and funds from our Central
Bank. The debt that lies embedded
in what was Anglo Irish Bank was not created by the citizens of this country. It has been meted out onto their backs
by a mixture of incompetence and mismeasurement over a certain period under the
past Administration.
We are at a moral crossroads. We should bring to the attention of the
creditors holding the bond the facts that the bank is insolvent and that, in
effect, it is not a case of our not wanting to pay but of our not being able to
do so...
Consider the debt of €1.25
billion. The attention of the
creditors will be in sharp focus because the banking system, the Irish-owned
banks, are in debt to the ECB and our Central Bank at a level of approximately €150
billion. It is the forbearance and
tolerance of citizens that keeps the financial edifice and engineering of the
eurozone and the greater financial system of the developed world in place. We have been doing considerable work,
facing enormous challenges.
Through the great work of the Minister for Finance, Deputy Noonan, and
the Taoiseach, we are bearing the load of trying to bring about a fiscal
adjustment in line with the troika agreement signed in November 2010. All that work is important and must be
done but the legacy debt is outside the responsibility of the people of this
State.
One and a quarter billion euro is
almost half the budget [measures] introduced in December. It is eight times the sum that will be raised from the
household charge and twice that which will be raised by the VAT increase. The debt crisis in Ireland and other
countries cannot be solved by adding more debt... Loading more debt on this
country to pay legacy debt is like suggesting a drink problem can be solved by
another whisky.
Minister for Finance (Deputy
Michael Noonan):
I thank Deputy Mathews for raising this very
important issue. The repayment of
the bond in question is an obligation of the bank and will be repaid by the
bank. It is important to be clear
that it is the bank and not the Exchequer which will meet this obligation. [Need anyone point the following to the Minister, that the 'bank' has no own assets or capital over and above that which has been committed to it by the State and that the Promissory Notes are being financed by the Exchequer?]
The Government has committed to
ensuring that there is no forced or coerced involvement by the private sector
burden sharing on Irish senior bank paper or Irish sovereign debt without the agreement
of the ECB. This commitment has
been agreed with our external partners and is the basis on which Ireland's
future financing strategy is built.
While the cost to the Irish taxpayer has been and will remain
significant, the Government clearly recognises the need to work as part of the
eurozone in order to ensure a return to the funding markets in the future. The only EU state where private sector
involvement will apply is Greece.
The following was agreed
by all 27 member states at the euro summit last October:
15. As far as our general
approach to private sector involvement in the euro area is concerned, we
reiterate our decision taken on 21 July 2011 that Greece requires an
exceptional and unique solution.
16. All other euro area
Member States solemnly reaffirm their inflexible determination to honor fully
their own individual sovereign signature and all their commitments to
sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support
this determination as the credibility of all their sovereign signatures is a
decisive element for ensuring financial stability in the euro area as a whole.
This was agreed by the
Heads of State and Government at their meeting in October, and Ireland was
included in the 27 states that agreed to it. [Minister Noonan fails to note here that it was on insistence of his own Taoiseach that article 15 does not include Irish banking sector resolution-related debts. And he deflects the arguments made by Deputy Mathews on feasibility of repaying these debts.]
It is not correct to state that only
taxpayers have borne the burden of rescuing the Irish banks. Holders of equity in the banks have
been effectively wiped out in burden sharing while holders of subordinated debt
have incurred a €15.5 billion share of the burden to date, including €5.6
billion since this Government took office less than a year ago. [Again, Minister Noonan is dis-ingenious in his comments. Equity holders and bond holders are contractually in line for these losses. Taxpayers are not. In effect, Minister suggests that there is some sort of equivalence between treating harshly contracted parties to an undertaking and treating harshly an innocent by-stander. There is no such equivalence.]
To impose burden sharing on senior
bondholders, or to postpone the repayment of this bond at this point in time,
is not in Ireland's best interest.
What is in the Irish people's best interest is that we regain our
financial independence and that we place ourselves in a position to re-enter
the financial markets at the earliest possible date... We do not need to scupper our recovery,
scupper the goodwill generated or alienate our partners by taking unilateral
action which in the medium to long term will prove wholly counterproductive. [This is an outright conjecture by the Minister that is unfounded in fact. It is not in the interest of the Irish people to simply regain access to financial markets. It is only of such interest if we can regain it at a lower cost than alternative funding provided. Furthermore, his statement assumes that not repaying Anglo bondholders will cause the detrimental impact on 'goodwill' and the 'financial markets'. This remains to be tested and proven.]
If we were to postpone or suspend
payments to creditors of IBRC, this would have a significant impact on both the
bank and, ultimately, the State. The senior debt, unsecured as it is, is an obligation of the bank. If the bank does not meet such an
obligation, it would lead to a default and, following that, most likely
insolvency. Insolvency would
result in a very significant increase in the cost to the State to resolve the
IBRC. [What cost? The Minister scaremongers the public, but cannot name a single tangible expected cost. Why is the interest of the bank aligned with the interest of the State, Minister?] ... Further, the financial market's view of Ireland as a place to do
business or invest would be seriously undermined. [Is Minister Noonan seriously suggesting that Ireland's reputation as a place to do business or invest dependent so critically on a bust bank with worst history of speculative decision-making ability to repay its insolvent borrowings? Would IDA confirm they are directly referencing Irish taxpayers willingness to cover private sector losses in any undertaking, no matter how risky, as some sort of the 'investment promotion' positive for Ireland? Can Minister Noonan confirm that he has done the analysis of the effects that bonds repayments by Anglo, and the resultant increases in the sovereign debt have on sustainability of our Government's reputation in the bond markets? Does he not know/ understand that any investor looking at his statements will immediately price into their valuation of Government bonds the possibility that the Irish Government can at will, out of the blue simply hike its own debt pile in the future to suit some other risky private sector fiasco? What does that risk alone do to our 'reputation'?]
Deputy Peter Mathews:
While I will
not get into a long debate, Greece will be the beneficiary of at least a 60%
write-down of its debt obligations. The Greeks got the attention of their creditors by going out in the
streets and having riots and by people being killed. We have knuckled down to correcting a fiscal imbalance and,
at the same time, we have stayed silent. We have been straitjacketed by the legacy debt. Our loan losses in the banking system
were €100 billion. While I know
the shareholders and some of the subordinated bondholders suffered, the
remaining losses were in the banks without being declared. The ECB stepped in to redeem
bondholders to date, which was a mistake. We are compounding the mistake by going along the same route now.
We have got to be honest about it and
open up the discussion. We are not
defaulting; we are opening a discussion. I made the point that we cannot pay. I use the word "we" euphemistically or
collectively in regard to the bank and the State. We cannot pay because of the guarantee that extends over the
bank. It is a case of us lifting
the telephone and asking, "Can we have your attention, please?" We cannot pay and we want to open a
discussion and explain to exactly how the creditor liabilities of our banking
system remain, and how they should be written down. There is further writing down to do. We have a €60 billion to €75 billion of
write-down to organise and negotiate.
To use an analogy, we have a
steeplechase race with about four miles to go. We have big jumps ahead. Normally, a steeplechase horse will start with about 12
stone on its back. Ireland's
legacy debt of private debt, non-financial corporate debt and national debt when
it peaks out at €120 billion is the equivalent of 24 stone on the back. It is not a possible race to run.
Deputy Michael Noonan:
I do not
disagree with Deputy Mathews' analysis.
However, we are in a situation which we inherited from our predecessors,
who entered into solemn and legally enforceable commitments in respect of Anglo
Irish Bank, as it was then. Of
course, Deputy Mathews is correct that we should do everything possible to
reduce the debt burden on the taxpayers of Ireland and to enhance Ireland's
capacity to repay its debts. We
are working on that and making some progress. [So that's it, folks. The Last Refuge of the Scoundrel = the arguments the Minister puts forward for expropriating personal property and income through higher taxation and reduced services for which we paid and continue to pay is: We are where we are. This alone should be very re-assuring to the future investors here.]
