Holiday on interest for Anglo IOU 'can't go on'
THE Department of Finance has admitted that it's "not possible" to take another interest holiday on the €30bn IOU used to rescue Anglo Irish Bank -- because any attempt to do that would fall foul of European rules.
The news comes as pressure mounts to postpone payments on the 'promissory note' used to bail out Anglo and not make a €3.1bn payment due on March 31.
The Government secured an 'interest rate holiday' for the IOUs in 2011 and 2012.
Earlier this week, prominent economists told a Joint Oireachtas Committee that a similar holiday should be taken again so interest wouldn't accrue at a rate of about 8pc from 2013.
But a spokesman for the Department last night admitted that it would not be possible to apply for another interest holiday because of new rules imposed by EU statistics agency Eurostat.
Eurostat generally requires all state debts to accrue interest, but agreed that no interest would be booked on the Anglo promissory notes for the two years to March 31, 2012. Anglo was compensated because the interest rate payable after 2012 was raised.
"This was a special case and Eurostat rules have since changed meaning this is not possible again," the Department of Finance spokesman said.
A spokeswoman for Eurostat stressed the rule changes would "equally apply to all debt instruments and all EU member states". This means the Government would face an uphill battle to prevent having interest kick in on the promissory notes from March 31 -- unless the IOUs have been elimated by that time.
Officials from the EU Commission, ECB and IMF have been working on a "technical paper" about ways the bailout could be restructured to ease the €3.1bn annual burden on the taxpayer. One idea under discussion is replacing the existing IOUs with bonds from Europe's bailout fund.
Burden
The fund could pay down these bonds, plus an appropriate rate of interest, over a relatively short period, so that the solvency of Irish Bank Resolution Corporation (formerly Anglo) would not be compromised.
The State could then repay the money to the European bailout fund over a longer period of time, so that the annual burden on the taxpayer would be reduced from the €3.1bn demanded now.
One of the major advantages of the plan is that the new European bonds given to IBRC could be traded and would be eligible for funding under the ECB's mainstream operations.
This means IBRC need not continue to draw down about €40bn from an "exceptional" liquidity programme being run by the Central Bank of Ireland.
- Laura Noonan
Irish Independent
