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ECB to Ireland: 'Drop dead' on promissory notes

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Mario Draghi. Photo: Reuters

Mario Draghi. Photo: Reuters

Mario Draghi. Photo: Reuters

THE European Central Bank reiterated yesterday that it has no plans for now to relax the payment terms on more than €30bn of promissory notes to the former Anglo Irish Bank.

A kind of IOU, the notes were issued in 2010 to spread out the cost of winding down the now defunct lender, which was merged last year with Irish Nationwide to form the Irish Bank Resolution Corporation (IBRC).

Government ministers have said repeatedly that some sort of deal to delay repayments is necessary for Ireland to recover.

"As to whether the ECB plans to do anything about the existing terms of the contract, the answer is no -- the existing terms of the contract are the existing terms of the contract," ECB president Mario Draghi told MEPs in the European Parliament in Brussels yesterday.

"We will continue to reflect on this issue with a forthcoming attitude but at the present time we have these terms of the contract," he said.

Mr Draghi was answering a question by Fine Gael MEP Gay Mitchell, who said the notes should be "recast" and paid over a longer period to help Ireland deal with its "cashflow" problem. The MEP said he was not discouraged by Mr Draghi's response, saying that it was "not 'no' for the future".

"Ireland has two problems -- cashflow and confidence," Mr Mitchell said. "We have had to cut pay and introduce difficult measures while taking private debt on to the public balance sheet," he said.

The European Central Bank is understood to have been irked by the Government's deferral last month of the first €3.1bn payment on the promissory notes, urging the government to honour its commitments.

However, European Commission economics chief Olli Rehn said he has "sympathy" with Ireland's plight and would be amenable to looking into a "readjustment" of the debt burden.

The notes were issued before Ireland applied for a bailout from the EU and International Monetary Fund and were also used to shore-up Irish Nationwide and EBS, which was merged with AIB last year.

The Government estimates that the notes, including interest, will end up costing €47bn over the next 13 years.

The IBRC has been using the notes as collateral to obtain cheap funding from the Irish central bank.

The Government has said a decision on restructuring the entire €30bn in notes hinges on a position paper still being drawn up by officials from the troika of the ECB, Commission and IMF.

Finance Minister Michael Noonan has said that securing continued low-cost ECB funding for Irish banks is a cornerstone of any future agreement.

Troika officials are in Dublin examining Ireland's progress on meeting the terms of the 2010 bailout.

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