Tuesday 21 November 2017

In the last-chance saloon Merkel's 'nein' kills off any hope of bank debt deal

Jerome Reilly

Jerome Reilly

Irish taxpayers have been played for fools for 14 months as Finance Minister Michael Noonan and Taoiseach Enda Kenny tried to get a deal from Europe on our billions of bank debt. On Friday, the German Chancellor Angela Merkel finally put us out of our misery. "There will not be any backdated direct recapitalisation of eurozone banks," she said.

What started as a battle to do a deal on the promissory notes -- €31bn of taxpayer-funded IOUs which we used to bailout Anglo and Irish Nationwide -- has developed into a negotiation to get a deal on all our banking debt: €64bn. Here's how the fiasco has played out.

Michael Noonan, left, confirms the Government is exploring ways to restructure its €3bn-a-year payments to Anglo Irish Bank (€31bn overall) and had already raised the issue with the bailout troika. "We haven't raised it with the authorities yet in specific terms, but we have pointed out in general terms to the troika the difficulties that come from paying it," he said.

Mr Noonan, due to meet the then ECB chief Jean-Claude Trichet, below, said he would be pressing for change to the "very expensive" promissory notes. "It's a piece of financial engineering that is extraordinarily expensive."

Mr Noonan admits to reporters in Frankfurt that Mr Trichet had been "pretty non-committal".

Mr Noonan reveals the Government was hoping to use Europe's new bailout fund to restructure the €30bn Anglo bailout. Mr Noonan said it was "not clear yet" whether the ramped-up EFSF fund would be "flexible enough" to be used for Anglo.

Mr Noonan admits changes to the promissory notes may not be accepted, although the Government and European Commission had exchanged position papers. "While I can't tell you it will happen, I can tell you there's a process in place."

EU Commission economics chief Olli Rehn promises to "carefully consider" Ireland's bid to cut the cost of Anglo Irish Bank's bailout and discuss the matter with senior officials in eurozone countries.

As the Greeks strike yet another deal, Mr Noonan tells Today FM: "There's a suggestion that there might be some arrangement [for Greece] made with the ECB and if that happens, we'll be watching it very closely and we'll try to avail of it as well."

Junior Finance Minister Brian Hayes in Brussels claims "significant progress" has already been made in getting the EU and IMF to agree to draw up a report on the promissory notes.

Michael Noonan admits that complex negotiations on changing Anglo Irish Bank's bailout won't be "sorted out" by the end of March, when a €3.1bn payment is due to be made to the bank.

Michael Noonan confirms Ireland will not have to make a cash payment on the €3.1bn annual tranche of the Anglo promissory notes due to be paid the following day, March 31. He tells the Dail that instead this year's instalment could be settled by the delivery of a long-term Irish government bond. Effectively the money we owe is lobbed on to the back end of the loan period.

The European Central Bank reiterates that it has no plans for now to relax the payment term. "We will continue to reflect on this issue with a forthcoming attitude but at the present time we have these terms of the contract," ECB president Mario Draghi, below, says.

Ireland will pursue an "alternative" way of reducing the bank bailout costs if efforts to change the Anglo promissory note don't succeed, Mr Noonan insists as speculation increases that the Spanish banking crisis could be a "game changer".

Mr Noonan says he plans to "commence conversations" with European colleagues. The Government will table a so-called technical paper on promissory notes.

The IMF says there is no firm timetable for resolving the issue of the promissory notes.

In a change of emphasis by the Government in the face of developments in Europe, Mr Noonan says he hopes a deal to reduce the burden of Ireland's overall bank debt can be reached before December, when the Budget is published. As well as the promissory notes this hoped for deal would include agreement to shift the burden of the €32bn injected into Ireland's pillar banks off the shoulders of the taxpayer as well as the Anglo promissory note.

The Government says it is sticking to an October deadline for a better deal from Europe on easing the €64bn overall cost of bailing out Irish banks, despite growing evidence that the deal is set to be delayed. Central Bank Governor Patrick Honohan blames "sequencing issues".

Mr Noonan admits for the first time in Paris ahead of a EU finance ministers' meeting they are unlikely to reach a deal on Irish debt. Mr Noonan said it may be in the country's interest to extend an October deadline. "I'm still working towards the end of October as a deadline but we're not going to be unduly concerned if it drifts a little bit," Mr Noonan told reporters

EU Commissioner Olli Rehn says struggling European banks will be funded on a "case-by-case basis". "When the time is ripe, I'm sure there will be a thorough discussion over the issue. Joint discussions will be done together with 17 euro states," he said

Mr Noonan demands a "declaration of intent" from the European Central Bank in relation to Irish bank debt.

On Friday, after the two-day EU summit, German chancellor Angela Merkel, below, makes her own declaration of intent. "There will not be any backdated direct recapitalisation of eurozone banks. If recapitalisation is possible, it will only be possible for the future," she said.

Sunday Independent

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