Government talk of restructuring the interest on the €3.1bn promissory note to the former Anglo Irish Bank has been dismissed as a distracting 'red herring' by three of the country's most eminent economists, including one former government adviser.
Amid the mounting opposition to the State ploughing €3.1bn of taxpayers' money into the now-defunct bank at the end of March, the Government's stance on the promissory note has been blasted as "irrelevant noise".
Finance Minister Michael Noonan and Taoiseach Enda Kenny have repeatedly stated that they want to get the interest on the promissory note restructured, in a bid to save the Irish economy €20bn.
The government leaders have branded the interest rate as "penal".
However, speaking to the Sunday Independent this weekend, three of the country's leading economists -- Dr John FitzGerald of the ESRI, Professor Karl Whelan of UCD and Dr Alan Ahearne of NUI Galway -- have all rejected this as untrue.
They say the interest on the promissory note is irrelevant as it is being transferred from one organ of the State (the Irish Central Bank) to another (the fully State-owned Irish Bank Resolution Corporation (IBRC -- the former Anglo Irish Bank).
"The argument about reducing the interest on the promissory note is a red herring," said Dr FitzGerald.
"The money is going from the Central Bank, which we own, to Anglo, which we own entirely.
"We are essentially paying the money to ourselves," insisted the economist.
Former government adviser Dr Ahearne of NUI Galway, who was adviser to the late Brian Lenihan and who now sits on the Central Bank Commission, said that the interest on the promissory note is actually very inexpensive.
Speaking to the Sunday Independent, he said: "Interest on the promissory note is not expensive at the moment, it is a very inexpensive way of financing at the moment. It is one arm of the State paying another.
"It will get more expensive over time, but the main issue is not with the cost of the promissory note."
Prof Whelan delivered a lecture on the promissory note and Anglo Irish Bank on Friday in which he concluded that the interest element of the promissory note was not significant.
He said -- concurring with Dr Ahearne and Dr FitzGerald -- that money is going from one State organ to another. He said any interest over and above IBRC's liabilities provides income that can be handed back to the State.
The taxpayer bailed out Anglo Irish Bank by creating €30bn of IOUs and handing them to Anglo. To meet banking rules, Anglo has to be paid interest on the IOUs by the State.
Anglo used the valuable notes as security for cash it borrowed from the European and Irish central banks. The cash was used to pay depositors and bondholders.
Today the IOUs are Anglo's main assets and almost all of its debt is owed to the Irish Central Bank.
It meant the State effectively owed the money back to itself, he said, explaining that the Central Bank would destroy the cash whenever it got it back.
During that lecture, he said the main problem was that the European Central Bank was forcing Ireland to remain within a funding structure, known as the Emergency Liquidity Assistance (ELA) and that is where the problem lies.
Prof Whelan said the ELA money was created out of thin air by the Irish Central Bank, credited to the accounts of the IBRC, which was then used to pay off German and French bondholders at the insistence of the ECB.
It is the inability to get approval from the ECB to date to amend the ELA that will see the €3.1bn payment to the IBRC by the State in March and every year for the next nine years. It is totally within the power of the ECB to allow us to restructure the timescale of repayment, but as of now it is saying 'no' to any change.
The economists were in agreement that amending the ELA would deliver the savings to Ireland, and not the promissory note.
Prof Whelan concluded his lecture with two proposals. The first one was to leave the IBRC to use its existing resources to pay off the ELA and whatever bondholders that are left.
He said the ELA should only be repaid when the country emerges from this economic crisis and he said the ECB Governing Council should give approval to these proposals.