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Government should pay €1bn AIB bond but not IBRC says McGrath Peter Flanagan

THE Government should not make the next €3.1bn payment on the Anglo Irish Bank promissory notes if it does not get a deal from Europe on its bank debts, the opposition finance spokesman has claimed.

Speaking to the Irish Independent, Michael McGrath said that while the Government should proceed with next Monday's repayment of €1bn to senior unsecured bondholders in AIB, he did not see why the State should pick up the bill for bailing out the former Anglo, now IBRC.

Monday's repayment will bring to more than €18bn the amount that banks have repaid to bondholders this year, but Mr McGrath said AIB "is one of the pillar banks that we are trying to build the sector around, so not paying its bondholders would be unwise. at this stage.

"Instead the Government should withhold payment on the promissory note for Anglo/IBRC if Europe does not give us some sort of deal on our bank debt," he said.

The Government is desperately hoping the EU will allow the European Stability Mechanism (ESM) to be used to pay for the bailout of our banks. However, on Tuesday, Germany, Finland and Holland made clear there was little prospect of getting a deal in the near term.

"It should not be taken lightly but it is certainly something that should be looked at. Unlike AIB, Anglo/IBRC is being wound down and the money going into that institution is dead money," he added.

The AIB bond repayment comes four years after the bank guarantee was brought in. That has been seen as the key to the collapse of the Irish economy, but Mr McGrath claimed that even without the guarantee, taxpayers would still have been on the hook for billions.

"It's clear now that the government was given bad advice at the time, and was lied to by the banks.

"Even without it, though, the State would still have been hit.

"Shareholders and junior bondholders have been hit for billions but the ECB policy of not allowing any bank to fail would have forced the government to bail out its banks, and pay back senior bondholders in any case," he said.

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