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Laura Noonan: Getting the troika's support on a banks package is just a first step

THE work in darkened smoky rooms is nearing an end. After months of discussions, officials from the European Central Bank, the European Commission and the International Monetary Fund are close to agreement on yet another masterplan for Irish banking.

This will go further than restructuring the burden of Anglo Irish Bank's infamous €31bn debt.

The 'Financial Measures Enhancement' package will also deal with the sticky matter of AIB and Permanent TSB's unprofitable tracker mortgages and the broader future of Permanent TSB.

It is likely to involve Europe's bailout fund coming in as a middleman between the Irish taxpayer and the money that Anglo needs.

The basic concept is that the IOU that Anglo has received from the Government will be replaced with new bonds from the European bailout fund.

The bailout fund will pay Anglo the money owed over a relatively short period of time. The State will then repay the European bailout fund over a longer period.

So Anglo gets its money quickly, but the annual burden to the State falls from its current €3.1bn because the State will be given more time to pay back the cash.

There is also talk of "supporting" other banks beyond Anglo. It is now a given that AIB and Permanent TSB will be freed of their unprofitable mortgages, so that these banks will become more viable.

The likelihood is that their loss-making tracker mortgages will be put into Irish Bank Resolution Corporation (IBRC), which has absorbed the old Anglo and defunct building society Irish Nationwide.

As for Permanent TSB, chances are it will be kept as a standalone for now and may eventually find its way into AIB when the bigger bank is better able to absorb it.

However, all this does not guarantee that Ireland is on to a sure thing. Getting agreement between the ECB, the IMF and the European Commission (and we're not all the way there yet) is only the start of the process.

Their entire plan hinges around two things. Firstly, the key issue of getting the European bailout fund to help out. Secondly, getting the ECB and Central Bank of Ireland to agree that the new European bonds can be exchanged for the IOUs.

TO get support from the European bailout Fund, Ireland must get unanimous agreement from all 17 eurozone members. If the European Commission throws its weight behind the new plan, that will undoubtedly go some way towards convincing eurozone countries to play ball.

But the eurosceptic Finns and the anti-bailout Germans will have to be convinced. Meanwhile, the forthcoming presidential election in France throws another wild card into the mix -- not to mention the referendum in Ireland.

Eurozone members may indeed row in behind Ireland -- after all, Europe wants to see Ireland's bailout programme succeed and implementing the new banking package would improve our chances of success. But their support cannot be taken for granted.

Then there's the ECB. The original Anglo IOUs are currently housed at the Central Bank of Ireland, which has loaned IBRC about €30bn in cash on the strength of that collateral.

The lending has been sanctioned by the ECB's governing council and it will be called on to sanction any change in that collateral.

The exact mechanics of how the bond swap is done may come in for closer scrutiny from the powerful governing council.

It will question whether anything in the Irish package will open the floodgates for other eurozone banks that will want similar help.

But there will also be an element of self-protection -- is there anything in it that weakens the ECB or the Central Bank of Ireland's chances of getting back their cash?

Getting agreement from the troika officials is certainly better than the technical talks breaking down in chaos with no consensus at all. But it's only half the battle -- and the easier half at that.

Irish Independent