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Anglo: Relief for taxpayers on cards as €3.1bn debt talks continue

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Finance Minister Michael Noonan. Photo: PA

Finance Minister Michael Noonan. Photo: PA

Finance Minister Michael Noonan. Photo: PA

A DEAL to put off the repayment of €3.1bn in Anglo Irish Bank debt due at the end of the month is on the cards.

It is understood that talks in Frankfurt today were “inconclusive” and will continue tomorrow.



If the talks are successful, this will make repayment of the banking debt easier by pushing it out for another 13 years.



Striking such a significant deal will help to allay fears that a second Budget and even more cutbacks will be needed this year.



It also takes huge pressure off the Government in that it gives some breathing space to the Coalition in its management of the stretched public finances.



Although the deal only focuses on the upcoming €3.1bn repayment on a government IOU to Anglo, it holds out the prospect of a renegotiation of much of the entire €60bn banking bailout.



Under the terms of the deal still being thrashed out:



* The €3.1bn debt due on March 31 will be deferred up to 2025.



* The debt will technically be repaid. There will be no default.



* There will be no net cost to the State.



* The deal is estimatesd to save the taxpayer €80m in interest this year.



* A new government bond, repayable in 2025, will be issued to cover the cost of the repayment.



Government sources told the Irish Independent last night



there was a "deal done in principle", but the final details still had to be worked out with the European Central Bank (ECB).



However, there is a technical stand-off between the ECB and the Department of Finance on how this month's €3.1bn repayment will be handled in an accountancy fashion. As a result, ECB talks on the deal will continue tomorrow while discussions conducted today were “inconclusive.”



Central Bank governor Patrick Honohan met the ECB governing body in Frankfurt today.



If agreed, the deal is expected to save the taxpayer €80m in interest payments this year.



Finance Minister Michael Noonan struck an upbeat tone in the Dail last night when he confirmed the deal was in the offing as discussions continue with the European authorities.



He specifically raised the prospect that the €3.1bn repayment "could be settled by the delivery of a long-term Irish government bond".



Mr Noonan said the government was involved in "technical discussions" on reducing the burden of debt associated with the recapitalisation of the banks.



He said the focus has been on the promissory note put in place to fund the Irish Bank Resolution Corporation -- formerly Anglo Irish Bank and Irish Nationwide.



This arrangement requires the State to make payments of €3.06bn each year to IBRC. There have been some developments on this during the day.



Mr Noonan said: "We are now negotiating with the EU authorities, and principally with the ECB, on the basis that the €3.06bn cash instalment due from the minister to IBRC on March 31, 2012, under the terms of the IBRC promissory note could be settled by the delivery of a long-term Irish government bond." Goodbody chief economist Dermot O'Leary said: "You wonder why they did not do this in the first place.



"It does help the Government's liquidity position, in terms of the cash it has to raise in coming years, but it does not make any difference to the country's solvency.



"Ireland will probably still need some extension of the bailout loans after 2013. Even with the annual €3bn payment removed, we will still have to borrow €15bn in 2014."



Mr Noonan's statement put the Government on a potential collision course with the ECB, which had strongly counselled against making any definitive statements about a potential promissory note deal.



The ECB fiercely guards its independence and did not want to appear to be pressurised into formally agreeing a deal.



Any such perception could leave the ECB open to legal challenge. A draft version of the minister's comments included a far more definitive statement about a "third renegotiation" of Ireland's bailout programme. This reference was removed.



But the minister's comments are still likely to have caused unrest in Frankfurt and may pose problems when the governing council of the ECB meets this morning.



In addition, the ECB wants further reassurance that the wider deal on the burden of Anglo's so-called promissory notes will be facilitated by Europe's bailout fund. That demands political agreement from all eurozone countries.



Sources said the issue may be considered at a meeting today.



That part of the proposal would essentially see the bailout fund agree to give Anglo a bond to replace the €30bn IOU that the Government has given.



The Government would then pay back Europe over 30 years. The effect would be to reduce the annual €3.1bn burden of the payments -- but the total interest bill would also go up, since the debt would be repaid over a longer period of time.



The European Central Bank is described as the most important party in the negotiations since it is the body sanctioning the use of the promissory note as collateral for €30bn of cash that's been given to IBRC.