Tuesday 28 March 2017

ECB not considering request to delay Anglo payments

Noonan seeks to swap IOUs for new deal within EFSF or ESM

Laura Noonan

Laura Noonan

THE European Central Bank is not considering proposals to delay the State's massive payments on Anglo Irish Bank's €30bn bailout, the Irish Independent has learned.



Sources confirmed the "only" Anglo scenario the ECB was considering involved swapping the bank's €30bn government IOU for another kind of IOU or bond.

The news comes after weekend reports and comments that the Government was seeking to delay paying Anglo's €30bn bailout for up to a decade.

Some commentators suggested it would be in the ECB's gift to grant this, since the bulk of the €30bn is being used to pay down money owed by Anglo to the Central Bank of Ireland and the ECB.

The Irish Independent understands that the issue of postponing the bailout payments was not raised by Finance Minister Michael Noonan at his meeting with ECB president Mario Draghi last week.

Mr Noonan and his team instead focused on the possibility of swapping the existing IOUs for a new bond that could be issued by Europe's bailout fund, either the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM) fund to be created in July.

If this happened, the EFSF or ESM could pay down Anglo's IOUs over a short period of time, and the State could repay the EFSF/ESM over a longer period of time.

This would help the Government because the annual burden of paying €3.1bn a year for the next decade would be lifted, making our national debt more sustainable in the short term. It is understood that the ECB accepted the general arguments in favour of restructuring the bailout by introducing an EFSF/ESM bond into the mix.

But the ECB won't consider the issue in more detail until there is clarity on whether the EFSF or ESM would be in a position to advance the bonds.

If a deal is done before the summer through the EFSF, it would have to be approved by all 17 eurozone member states. If a deal is done after that through the ESM, it would need approval of all 27 EU states.

A deal with the EFSF or ESM would win favour from the ECB because it would help wean Anglo off the Exceptional Liquidity Assistance (ELA) programme that the Central Bank of Ireland has been running for three years.

Auction

Anglo uses its existing IOUs to get more than €20bn of ELA because the bonds aren't accepted by the ECB's mainstream operations. New EFSF or ESM bonds could be traded in the market or used at the ECB's main auction.

Sources stressed that any Anglo solution would have to be viewed in the context of the overall restructuring of the Irish banking landscape. The other major outstanding issues are Irish Life & Permanent and solutions for the unprofitable tracker mortgage portfolios of Permanent TSB and AIB.

All of these are expected to be materially progressed by April, when the EC/ECB/IMF troika returns to Ireland for its next mission. A "technical paper" on the Anglo bailout options is due to be delivered by the troika in February.

Irish Independent

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