Negotiations under-way on Promissory Note deal

The European Central Bank. Notice a sculpture ...
The European Central Bank. Notice a sculpture of the euro sign. (Photo credit: Wikipedia)

After last nights announcement in the Dáil by Finance Minister Michael Noonan, full statement on Karl Whelan’s blog, negotiations are under way between Central Bank Governor, Patrick Honohan, and the European Central Bank.

The Promissory Note, basically a Government IOU to the Anglo Irish Bank, is worth over €3.1 billion and is due for payment on the 31st of March, which is also the day of the Fine Gael Ard Fheis in Dublin.

The prospective plan is to swap the Promissory Note for a Government backed bond that will be due for repayment in 2025. This will give the Government some breathing space on time, but crucially will mean that the €3.1 billion can be used to help shore up the budget. That bond will also be used by the IBRC as collateral in seeking emergency loans from the Central Bank.

According to the Irish Independent the basic details of the deal are as follows as the more intricate details still need to be ironed out:

  • The €3.1bn debt due on March 31 will be deferred up to 2025.
  • The debt will technically be repaid. There will be no default.
  • There will be no net cost to the State.
  • The deal is estimatesd to save the taxpayer €80m in interest this year.
  • A new government bond, repayable in 2025, will be issued to cover the cost of the repayment.

While Irish Economy notes that a number of questions still need to be answered this is hopefully a good deal for Ireland. It will also hopeful spur on the Troika (EU, ECB and IMF) in renegotiating the overall debt of the bailout of Anglo Irish Bank and Irish Nationwide now known as the Irish Bank Resolution Corporation.

UPDATE: The Sunday Business Post have an excellent explanation of the deal

Noonan announces deal on Promissory Note

This is a photograph of the Dáil chamber, Lein...
This is a photograph of the Dáil chamber, Leinster House, Kildare Street, Dublin Ireland. It is the chamber and seat of Irish Government where Irish parliamentarians (TD's) govern Ireland. The photograph was taken on 28th of June, 2008 at the inaugural opening of the Houses of the Oireachtas (parliament) for a 'family fun day'. This we were told (by the guides) was the first time that photography was permitted inside the Dáil chamber. (Photo credit: Wikipedia)

Tonight speaking in Dáil Eireann, Finance Minister Michael Noonan, announced that a deal had been brokered on the Anglo Promissory Note which is due to be repaid. An excerpt from his speech from

Firstly, there is an issue that I wish to bring to the attention of the house as the Government has always committed that we would inform the Dáil about any development concerning the payment of the promissory note at the end of this month.

In more recent months, we have been involved in technical discussions on reducing the burden of debt associated with the recapitalization of the banks. In particular our focus has been on the Promissory note arrangement that was put in place to fund the Irish Bank Resolution Corporation – formerly Anglo Irish Bank and Irish Nationwide. This is an arrangement, which requires the State to make cash payments of €3.06 billion each year to IBRC. There have been some developments on this issue during the day.

The discussions with the European authorities on the general issue continue but we are now negotiating with the EU authorities, and principally with the ECB, on the basis that the €3.06 billion cash installment due from the Minister to IBRC on 31 March 2012 under the terms of the IBRC promissory note could be settled by the delivery of a long term Irish Government Bond. The details of the arrangement have still to be worked out.

More as details become clear.

How soon before we go to the EU-IMF?

Broken Cross
Image by Lochinvar1 via Flickr

Yesterday I found this post on the Telegraph website (via Stephen Kinsella). Its quite a worrying read for those of us who are worried about Ireland’s future.

Ireland is funded until April but after that we will have to return to the bond market. Our auctions are currently suspended. As Colm McCarthy said in the Irish Independent

“The €1.5bn not borrowed in October plus the €1.5bn not borrowed in November represent borrowing postponed, not borrowing avoided,”

If we can’t raise this money, we may have to tap our pensions reserve of €12bn, but that is not a good idea as we do need that money.

The spreads over German Bunds are mimicking the action seen in Greece in the final hours before the dam broke.

This is a worrying sign. Are we about to the way of Greece?

Even if the government manage to win the Donegal South West election and pass the budget, we might still not be better off.

Its looking like sooner or later we will have to go cap in hand to the EU-IMF bailout fund.
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FG Complain to EU about NAMA – Its a bit late?

Corrected (rotation and minor crop) of :File:B...
Image via Wikipedia

So Fine Gael’s Senator Eugene Regan made a formal complaint to the European Commission about NAMA.

He claims the ‘scale and scope’ of the scheme is disproportionate to the size of the Irish economy, transfers too much risk from the banks onto the Irish taxpayer and does not contain sufficient safeguards that Irish depositors and borrowers will not be forced to pay for the huge mistakes by Irish banks.

Now I think most people would agree with that, but why go crying to the EU now? I thought the Government claimed they cleared this with the EU? Then again they never produced the proof.

The submission can be read here (PDF)

“Fine Gael has grave concerns about the NAMA scheme and the implications it will have for each and every citizen of the Irish State. We opposed the NAMA proposal in the Dáil and Seanad, along with many others, but Fianna Fáil and the Greens forced their ill-advised plans through regardless. Our concerns persist and we have highlighted them is this submission. They include the lack of transparency, flawed valuation methodology, no guarantee of credit flows from banks and inadequate burden-sharing between the banks and the taxpayer.

“The complaint to the Commission calls for the exclusion of Anglo Irish Bank from the scheme and the divestment of non-core assets of Bank of Ireland and AIB to ensure that the focus of each institution is on the provision of credit to the Irish economy.

“The Government has so far presented EU approval of NAMA as a formality and I am asking the Commission to critically examine the bankers/ developers bailout known as NAMA with a view to limiting its scale and scope so that the cost to taxpayers and the State can be minimised.

“While the choice of asset relief scheme is decided by member states, the scale and scope of the NAMA project to be undertaken by the Irish Government, as set out in the draft NAMA business plan, is entirely disproportionate to the size of the Irish economy and budgetary resources and threatens the financial viability of the State itself.

“The scheme also ignores key guidelines issued by the European Commission in relation to transparency in the valuation of assets and the risk-sharing element which sees the taxpayer shouldering most of the burden. Furthermore, the unrealistic assumptions in relation to the ‘long-term economic value’ of assets will unquestionably have a severely negative impact on the Irish State, and its people, for generations to come.

Most of the above we have heard before. But is Brussels willing or able to do anything about it? NAMA is passed. Its law. I know Fine Gael couldnt raise it before it was passed with the Commission, but still is it not a bit late? A bit of crying over spilt milk?

I cant see Brussels telling the Government to undo NAMA, but we see what happens. But we will be waiting I would say!

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While I was at dinner

Northern RockImage via WikipediaIt seams I, (as well as every other Irish Tax Payer) has become part owner of Anglo Irish Bank. According to the statement on the IT website “The Government has today decided, having consulted with the Board of Anglo Irish Bank Corporation plc (¿Anglo¿), to take steps that will enable the Bank to be taken into public ownership.”

The statement calls Anglo a “major financial institution whose viability is of systemic importance to Ireland”. The reason for the nationalisation is “unacceptable practices that took place within it have caused serious reputational damage to the bank at a time when overall market sentiment towards it was negative”.

So basically the state is not only bailing Anglo out, it is putting tax payers money at risk.

Northern Rock nationalisation hasnt worked very well in the UK. I wonder how well it will work here?

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