What the promissory note deal really means
Published 07/02/2013 | 18:31
A COMPLEX deal to reschedule some of Ireland's multi-billion bank bailout is being hailed as a success.
But what does it really mean?
Q: I'm confused. What exactly has the Government done and why should I care?
A: They have wound up the Irish Bank Resolution Company (IBRC) - which used to be Anglo Irish Bank and Irish Nationwide - in a deal which they say could save the country one billion euro a year.
Q: How did they do that then?
A: Well, Anglo left us with billions of euro in debts - 28 billion euro at the last count. So-called promissory notes - basically IOUs to the senior bondholders, mainly big institutional investors, who were owed the money - have been swapped for government bonds.
A: So, the Government said there is just 3% interest to be paid on the new long-term bonds, compared to the 8% on the promissory notes. And they do not have to be repaid until at least 2038, whereas we would be shelling out 3.1 billion euro every year under the old repayment scheme.
Q: Is that what they call kicking the can down the road?
A: Not according to finance minister Michael Noonan. He said inflation would ensure that debt would be a lot more manageable when the time came around to pay it.
Q: So how much exactly is this saving us?
A: The Government says we will have to borrow 20 million euro less over the next decade. They have suggested this will mean less public spending cutbacks and less tax rises.
Q: So, why didn't they do this before if it was so clever?
A: It now appears Project Red - that's what the Government called their secret plan - was being plotted out for quite some time.
Q: They looked very pleased with themselves over it?
A: They did. But critics said the deal lets bond-holders off the hook, while younger generations in Ireland will have to pick up the tab in years to come.
Q: OK, go on then, how much is it going to cost this time?
A: In short we don't know. And that's because the finance officials in Dublin won't show us their sums - we don't know for sure how the bonds will be split up, and we don't know when and how often interest rates will change. Still confused?