Colm McCarthy: A coup for the Government – but it still has unfinished business when it comes to debt
Absence of principal reduction does not mean the prom-note deal lacks value.
The two most insolvent of the Irish banks, Anglo and Nationwide, were closed and absorbed into a Government wind-down vehicle, IBRC, in July 2011.
The Government has closed IBRC and secured about as good a deal on the Anglo and Nationwide portion of the legacy bank debt as could have been achieved. To pretend otherwise is to wish that Ireland could hop on to a time machine and unwind the disastrous bank guarantee of September 2008 and subsequent errors.
There is no reduction in the headline level of sovereign and sovereign-guaranteed debt. The real economic burden of the debt, contained in the so-called promissory notes, has, however, been reduced. Principal reduction was never an option on this portion of the debt, since the European Central Bank would have exceeded its legal remit and would have left itself open to court challenges. It would also have set an unwanted precedent were it to countenance a debt write-down.