So near, yet so far on oddest day of financial crisis
SO near and yet so far. Or was it ever that near at all?
The events of yesterday – or rather the non-events of yesterday – give it a claim to be the oddest day of the financial crisis since the night of the government guarantee.
Not perhaps the most serious – just the oddest.
But it is serious all the same; especially politically for an increasingly stressed Coalition.
It ended with the liquidation of the former Anglo Irish bank – now Irish Banking Resolution Corporation (IBRC).
People will like the sound of that – but it changes very little, and yesterday was supposed to change a lot.
In particular, it was supposed to avoid the horror on March 31 of paying over €3bn of the promissory notes which allowed Anglo to be wound down slowly and pay off most of its debts, instead of collapsing and, perhaps, bringing the rest of the Irish banking system with it.
This huge burden has become a central issue for the Government, with warnings that the Coalition might even collapse if it was not lifted. To make matters worse, a further €3bn, which was postponed last year, is supposed to be repaid in May.
Relief from that depends on the European Central Bank (ECB), which provides the money on the back of the promise to pay in the notes. Its governing council was supposed to agree to a relief scheme last night. Except that it didn't.
The odd bit is that the Government seemed so confident of a deal that it remained non-committal when details of the plan appeared on financial media around the globe.
At least we know what the proposed deal would cover. The liquidated Anglo will quickly leave the stage but its €16bn loans will transfer on that day to NAMA.
At one level, this makes obvious sense.
Why have two institutions managing loans – mostly on property and most of them bad? Rank-and-file IBRC staff will continue to do the work, under the auspices of NAMA, although many of the top brass will presumably be redundant – perhaps on very generous contractual payouts.
The €30bn promissory notes would be replaced by several different government borrowings, some not due for repayment until around 2050. With only interest to be paid for the next several years, the Budget could save €2bn a year.
That still leaves plenty of scope for recriminations. The very name NAMA is a red rag to several angry bulls. But the core of the debate was already apparent last night: would there be any reduction in the actual debt burden, and will life get easier for the ordinary citizen?
The short answer to both questions is: No it won't. But the long answer is a bit different. Since countries do not die (or at least not often), as well as the amount of debt, it matters when they have to repay it and replace the money with new borrowings.
There will be no reduction in the actual amount of debt, but it will be spread between NAMA – whose figures don't appear on the annual budget – and the Exchequer. There could be even more recrimination over whether the €3bn corrections in next December's Budget should be reduced, and if so by how much, or whether the saving should be be used to close the deficit sooner.
Instead, the ECB failed to play ball at all. The signs are that only a few of its 17 national governors are opposed – and that the German Bundesbank might even be on board. But a few may be enough. It is hard to see the ECB forcing a vote on its governing council for Ireland.
With no deal, nothing is certain. IBRC staff were told the bank was being liquidated and to hand in their security keys.
Directors believed they were removed. Now, the promissory notes belong to a liquidated entity.
Heaven knows what they will think of all this in Frankfurt. It does not look as if it makes a deal any easier. It may even add to the legal complexities of the promissory notes.
The immediate question is how all this could happen if it was not definite that the ECB would agree – and it could never be definite. Meanwhile, the Ides of March approach – and two weeks later, the payments.