Fianna Fáil Finance spokesperson Michael McGrath has said Taoiseach Enda Kenny didn’t quite tell the whole story on RTE’s Prime Time last night when he referred to a €50bn reduction in the country’s borrowing requirement.
Deputy McGrath stated, “The Taoiseach said a number of times during last night’s interview that the government had achieved a €50bn reduction in Ireland’s borrowing requirement. However, when I asked the Minister for Finance recently to provide a breakdown of the €50bn, it became clear that €40bn of the €50bn is accounted for by longer loan maturities. Several Ministers have inaccurately claimed the government has secured a €50bn reduction in our debt. This is simply untrue. Anyone who has had their mortgage term extended could tell the government that it is a not a reduction in debt. With the overall debt remaining the same, a reduced borrowing requirement in the short term means a higher borrowing requirement in the longer term when the loans fall due. The government should be honest with the people in this regard.
“Approximately €10bn will be saved in reduced interest payments over the next 10 years. These savings are of course very welcome. However, it is worth remembering how these savings actually came about. In his book “The Price of Power” Pat Leahy outlines how the Government entered negotiations at the 2011 summit seeking a 1% reduction in the interest rate on Ireland’s bailout loans. The situation in Greece was so dire at the time that they needed a much larger cut in the interest rate on their loans and Ireland was granted a 2% reduction in our interest rate in line with what was agreed for Greece. Ireland is now paying 3% on its remaining loans from the EFSM which is actually higher than the rate at which we can borrow on the open markets.
“The government are actually claiming the extension in the time period to repay the bailout loans and the cost of rescuing Anglo Irish Bank as savings when in fact these amounts have just been pushed out to a later debt. No write down was secured in the cost of Anglo Irish Bank and the government failed in their aim to secure burden sharing with bondholders in the bank. In fact, the time period over which the Anglo cost will be borne is still uncertain as the European Central Bank is putting pressure on the Irish Central Bank to step up the pace at which it sells the bonds it holds which replaced the promissory notes. At the moment, the interest on these bonds is effectively paid back to the exchequer. By selling them in to the market, the annual cost of the bank rescue is substantially increased. The Taoiseach does not appear to be taking account of this in his claims.”
Recent Parliamentary Reply on subject of €50bn claim
QUESTION NOS: 208, 209, 214
DÁIL QUESTIONS addressed to the Minister for Finance (Deputy Michael Noonan) by Deputy Róisín Shortall, Mick Wallace, Michael McGrath for WRITTEN ANSWER on 17/02/2015
For WRITTEN answer on Tuesday, 17 February, 2015.
To ask the Minister for Finance if he will provide a detailed breakdown of the €50 billion debt reduction, he and a number of Government Ministers have stated the Government has secured, with regard to the renegotiation of the now concluded troika programme with Ireland.
– Michael McGrath T.D.
For WRITTEN answer on Tuesday, 17 February, 2015.
The Government has made significant progress in reducing the burden of the EU/IMF programme loans. This is delivering real and tangible savings.
These savings can be broken down into two elements, cash savings and a reduction in our borrowing requirement over a period of time.
In July 2011, the Euro Area Heads of State or Government (HOSG) agreed to reduce the cost of the European Financial Stability Facility (EFSF) loans, and similar reductions were subsequently agreed for the interest rates on the loans provided by the European Financial Stabilisation Mechanism (EFSM) and also by the three bilateral lenders (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 reduction in interest rates on our EU and bilateral programme loans in 2011, and more recently the early repayment of the IMF loans, mean that we have negotiated real cash savings to the exchequer of circa €10 billion.
Also in 2011, the average maturity of the EFSM and the EFSF loans was extended to 12.5 and 15 years respectively.
In 2013, EU Finance Ministers agreed in principle to further extend the maximum weighted average maturities on our EFSF and EFSM loans by up to 7 years, over and above the extension agreed in 2011. This further maturity extension removes a refinancing requirement of some €20 billion for the Irish State in the years 2015 to 2022. This extension of maturities has a number of significant benefits for Ireland, including smoothing our redemption profile, improving long term debt sustainability and it also has a positive impact on the cost of Exchequer borrowing through creating further downward pressure on our borrowing costs.
In February 2013, the Irish Government replaced the Promissory Notes issued to IBRC with a series of longer term, non-amortising floating rate Government bonds. The restructuring of the IBRC promissory note has reduced the overall borrowing requirement for the State by €20 billion over the next ten years. Under the previous arrangements, the State was required to borrow €3.1 billion annually in order to meet the required cash payments on IBRC’s Promissory Notes. As part of the arrangement the Central Bank acquired €25bn of Floating Rate Bonds and €3.46bn of 5.4% Treasury Bond maturing in 2025 in replacement of the Promissory Notes. Following this exchange the State no longer has to borrow to fund these annual cash payments in the coming years.
The extension of maturities and the promissory note arrangement reduces the State’s borrowing requirement by over €40 billion over the next decade, thus significantly improving the viability of the State’s finances.
These measures, and the interest rate reductions, have significantly improved the sustainability of our debt. The success of these efforts is apparent in the strongly improving economy and the record low bond yields currently being offered for Irish Government debt.