Business Irish

Thursday 23 January 2020

Why Government is so excited about these 'promiscuous notes'

Q: Why is the Government getting so excited about these promiscuous notes? Why do they care about who we sleep with?

A: You can keep your louche private life to yourself; the Government is worried about promissory notes, which are just a fancy word for the €47bn bill connected with bailing out Anglo Irish Bank and Irish Nationwide. It has come to the Government's attention that €47bn is a large sum of money and there may be ways of delaying the repayments.

Q: But this has been obvious for some time. What happened? Why are they banging on about it at the moment?

A: The Government has been dropping very heavy hints that a solution is at hand but then bashfully denying any such thing. The international media has been primed that a solution is at hand, but the Taoiseach is hopping up and down in the Dail telling anybody who will listen that a solution is some way off.

Q: So who do we believe?

A: The media, of course.

Q: That's a quare way to be doing business all the same.

A: Europe's a quare place. The Government has to toot its own trumpet in advance if it is to get any public credit for a new deal but it can't be seen to take things for granted -- that would drive our partners crazy. Hence the off-the-record boasting and public diffidence. The Cabinet, or at least every member bar Social Protection Minister Joan Burton, is also very anxious not to link the promissory notes to the referendum for the same reasons.

Q: Is this all linked to Anglo Irish and Irish Nationwide?

A: No. The Government appears to be engaged in a broader attempt to tie up a lot of loose ends surrounding the entire banking sector. It also wants to take all the unprofitable tracker mortgages from Allied Irish and Permanent TSB and dump them in some sort of zombie bank.

Q: What's wrong with my tracker mortgage?

A: There's nothing wrong with your tracker. In fact, you're very lucky to have one. The problem is that the rest of us are subsidising your cheap and unprofitable mortgage through the endless bailouts for Allied Irish and the other banks. It will make no difference to your mortgage if it is shifted elsewhere but taking the trackers away from the banks will allow them to claim that they have returned to profit.

Q: I still don't understand why it is costing us €47bn to bail out Anglo. I thought the figure was around €30bn?

A: That was one of Brian Lenihan's dumber moves. The promissory note system spreads the cost over 10 years but saddles us with an interest bill of around €17bn, which will take another 10 years to repay. It would be like paying for your home extension with a credit card over decades. Mr Lenihan wanted to hide the cost of bailing out Anglo by keeping it away from the national debt to avoid scaring the markets.

Q: And how does that work?

A: It is all rather tortuous but the simple version goes like this: Anglo Irish (or IBRC as it likes to style itself these days) borrows money from the Central Bank in the form of emergency loans. This means the Central Bank is racking up debts which must be repaid at some stage. The promissory note is a promise by the State to repay those Central Bank debts. One of those €3.1bn payments is due this month and they will continue in some form or another until 2031 if you take interest repayments into account. Because the Central Bank is a branch of the European Central Bank, the Government cannot make any changes to this arrangement without consulting with the ECB and the 16 other countries that have adopted the euro.

Q: Phew! That's a lot of people.

A: Sure is. This makes it difficult to know what will happen next. Even if the ECB is persuaded to allow changes to the promissory notes, we still have to get the nod from 16 central banks and the various parliaments, including the Dutch, German and Finnish assemblies, which are a little paranoid about taking on more obligations.

Q: What does it mean for us if the whole thing fails?

A: The Government's official position is that we can soldier on regardless. The reality is that we would be stuffed. The entire recovery story is predicated on substantial changes to the promissory notes. Any failure would leave the country's already optimistic budget targets looking impossible. It would also be a big blow to the Government's credibility.

Q: I can barely contain my excitement. When will we know?

A: Enda Kenny told the Dail this week that a solution will come in the "medium term". The lovely thing about "medium term" is that it can mean anything from next week to next year. One thing is certain, the Government will want a deal sometime before the people go to the polls later this year to vote on the fiscal compact referendum.

Thomas Molloy

Indo Business

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