Minister for Finance Michael Noonan said the “priority” in his campaign to ease Ireland’s bank debt burden is to secure European Central Bank support for a new rescue plan.
The Government wants to replace the €47.billion Anglo Irish Bank promissory note scheme with cheaper, longer loans backed by the temporary European Financial Stability Facility bailout fund or the permanent European Stability Mechanism.
Mr Noonan was in Copenhagen today for meetings with his European counterparts, at which it was agreed to cap overall euro zone rescue lending at €800 billion. The talks followed the deferral of a €3.06 billion promissory note payment due by the Government this weekend.
Mr Noonan acknowledged that German support for a broader initiative to ease the burden of the bank debt will be important but said the stance adopted by the ECB would be the key element in the negotiation. In question is whether the ECB agrees to provide low-cost funding into the "medium-term" as part of a new arrangement to replace the promissory notes.
Following the deferral deal, an ECB spokesman said it still expects that the future promissory note payments "will be served according to the schedule to which the Government has committed itself."
However, Mr Noonan said this came as no surprise. "They say they expect Ireland to pay on schedule in the coming years," he told reporters. "But they also know that the European authorities and the IMF are preparing a policy paper where they're exploring the possibility of an alternative to the promissory note being found which would enable Ireland to have a less onerous method of repayment and we're moving onto that now."
Mr Noonan told the Dáil yesterday the Government had won agreement from European institutions to defer the payment on promissory notes due tomorrow. The payment will be covered by way of a long-term Government bond being issued to the former Anglo. It will in turn swap the bond for cash in a transaction with Bank of Ireland to settle tomorrow's repayment.
Mr Noonan said this complex piece of financial engineering would help Ireland return to borrow in the financial markets.
The Government issued the IOUs in 2010 to cover €31 billion of the €35 billion cost of Anglo and Irish Nationwide over a long period, as it didn’t have cash to pay for the failed lenders.
Further talks on a long-term deal on the remaining repayments as part of a wider restructuring of the banks will continue between the Government and the troika of the EU Commission, the ECB and the International Monetary Fund.
Mr Noonan said yesterday the cash saved could be used to repay some of the €8 billion debt that falls due in January 2014 on the first State bond to be repaid after the EU-IMF bailout programme ends.
The deal will lead to a significant cash benefit to the State this year and improve the prospect of repaying its debts, he said. It will have a €90 million impact on the Government deficit in 2012, which was small relative to the €3.06 billion cash saving, he added.
Speaking this morning, Minister for Public Expenditure and Reform Brendan Howlin said the deferment will make a difference to ordinary people. Mr Howlin also the Government is negotiating with the troika over rescheduling Anglo debt in a way that “makes it much more sustainable" for Ireland. “We are re-structuring that debt in a way that makes it more affordable so in a way it can be looked at as a write-down," he said.
However, Sinn Fein finance spokesman Pearse Doherty today claimed the new long-term government bond would fail to reduce Ireland’s debt. “Not only has the Minister abjectly failed to seek a restructuring of the promissory notes, but that even the movement it claimed to have achieved is a jumbled up mess of accountancy trickery and additional costs, with some crossed fingers thrown in,” said Mr Doherty.
Last night, Fianna Fáil finance spokesman Michael McGrath said the deal was a modest step in the right direction but would only be of real significance if it was part of a deal reducing the overall bank debt.
