Wednesday 17 January 2018

ECB making a show of playing hardball on promissory notes

Donal O'Donovan and Brendan Keenan

MEMBERS of the European Central Bank are playing hard to get on a promissory note issue, to discourage other countries from expecting an easy deal on debt.

Last week, the ECB's governing council informally shot down Ireland's preferred plan to spread the €31bn cost of rescuing Anglo Irish Bank out over up to 40 years instead of 10 years.

But the talks on renegotiating a deal on the promissory note – which currently costs €3.1bn a year – are continuing and have not completely broken down.

Informed sources said that last week's meeting of the ECB "flushed out" a group of council members uncomfortable with the Irish plan to repay the debt over a longer period of time.

This is seen as a strategy by the ECB to show other countries hoping for a deal on their debt that it is not going to be easy to get.

And the problem for the Irish negotiators is devising a deal on the promissory notes which does not look like "monetary financing" – this is where the central bank creates money to lend to governments.

This is against the law for the European Central Bank.

Two strands of the Irish approach have now been sidelined as the negotiators concentrate on the core element of the promissory note deal.

Efforts by the Government to sell stakes in Irish banks to reduce our crippling bank debt have been parked, as have plans to link the talks to a side deal on securing cheap funding for loss-making tracker mortgages.

Following last week's set-back, the government efforts to secure a better deal on the €64bn cost of bailing out the banks is now solely focused on the Anglo Irish Bank promissory note.

Part of the proposal would see the Government issuing bonds – a type of IOU – directly to the Central Bank, as a form of security.

Under that proposal, the Central Bank would hold on to the debt for 15 years.


ECB officials are against that because they would prefer for Ireland to borrow cash either on the markets or from the European Stability Mechanism.

The tight timeline means the Government is under intense pressure to secure a deal quickly.

Four meetings of the ECB governing council are scheduled before the next €3.1bn Anglo repayment falls due on March 31. Taoiseach Enda Kenny said yesterday that talks were still ongoing and reiterated his belief that agreement would be reached before the end of March.

If a deal is not reached, the Government is committed to paying the debt in full, and on time.

Payment has been included in this year's Budget so will not mean any new spending cuts.

Irish Independent

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