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The prize for being 'good' is another kick in the teeth

It's 'ludicrous' alright, Mr Noonan -- ludicrous that we're still paying the debts of a dead and rotting bank, writes Brendan O'Connor

The Taoiseach told them in the Dail last Wednesday that "serious technical discussions" were under way at EU and IMF level about the notorious Anglo promissory notes. "I will not go beyond that except to say there is an intense level of discussion about the negotiation of an alternative to the promissory notes," he said, keeping it mysterious.

No offence to him, but I'd say he's bullshitting.

I don't actually believe that they are having any high-level discussions about the Anglo promissory notes, which are possibly the biggest financial scandal in this country right now. I'm not saying Enda is lying, mind you. He might actually think they are having a discussion about the promissory notes. Or maybe, just to make sure Enda could say that discussions were under way without lying, they actually mentioned the promissory notes recently to the EU.

But you can bet your ass there are no serious discussions going on. The only reason the promissory notes were brought up is because the Government was trying to justify the fact that it will be handing out another billion-plus to bondholders in a dead bank this month.

And this is what they do when they are worried the natives are getting restless about giving more of our hard-earned money to the can't-believe-their-luck bondholders in a dead, failed bank. They tell us to play along with it because the bigger issue is the promissory notes and if we give away the pennies we will save the pounds on that.

The promissory notes, in case you don't know, are basically a giant IOU the Government got from the ECB to pay off €30bn of Anglo and Irish Nationwide debt. The difference between these and our bailout debt, on which we pay 3 per cent, is that the interest rates on the promissory notes, while it seems deliberately vague, is two or three times that -- between 6 and 8.2 per cent. In real terms what it means is that we will pay back €47bn on that €30bn. Obviously, this is insane, particularly given that it turns out there were zombie banks all over Europe and they are all going to be bailed out in some shape or form at more reasonable rates. But it makes no sense either for a bankrupt country to be paying these rates.

Does Europe want us to get out of this hole or not? If we were a household, and Eddie Hobbs or someone was trying to help us, the first thing he would say is consolidate your debts and pay off your credit cards, because it's nuts paying the crazy interest rates on them. The promissory notes are our credit card debt. And we need to sort them out. But we aren't, regardless of what they tell you.

Let me take you back to early November. €715m is being paid out to unsecured and unguaranteed bond-holders in a bank that no longer exists. People are livid. So Noonan says he is livid too, but does that thing the Government does where it blames the previous government. Then he says that as galling as it is, we are much better off paying the €715m and working with Europe on this, because then, he says, they will work with us to see if we can put together an alternative to the promissory notes. Noonan says we will save €10bn in interest on this.

Pat Rabbitte joined in too in November, saying that what we would gain by not paying the bondholders will be dwarfed by the quid pro quo we now expected from Europe in the shape of an alleviation in the promissory note rate.

Leo Varadkar joined in too, saying he was confident we would get the renegotiation in the promissory note interest rate and that it would knock a whole year off austerity, which would be great. When Olli Rehn's spokesman denied there had been any formal proposal from the Government about renegotiating the interest rate on the promissory notes, the Department of Finance insisted that Noonan was not bullshitting and that technical discussions were under way and that the issue had been brought up with the EU, the ECB and the IMF. They said Olli Rehn's spokesman might not have been aware of the discussions. Jesus.

Once the Government had got past the public outrage about giving out more money to bondholders, we heard nothing else about saving the €10bn or the year of austerity on the promissory notes. We continued racking up the 8.2 per cent interest on them and we were resigned again to paying back the €3bn-plus a year on them.

And yes, you got that right -- the total amount that we will save from this year's Budget will more or less go completely to paying off the promissory note repayments, which, as far as I can figure, start next year.

Then, at the end of the week before Christmas, which you might reckon was a good day for bad news, an "authoritative Government source" slipped out a little message about the promissory notes. It didn't get all the play and palaver that the talk of a renegotiation got, and there weren't three ministers, or even one minister, to put his name to it this time. But basically, Harry McGee told us in The Irish Times that the Government had quietly downgraded its plan to persuade the ECB to change the terms of the promissory notes. Noonan's efforts to get the €17bn interest bill reduced hadn't worked. Talks might continue but the Government was not optimistic about a good outcome. So there you go. Quietly off the table. No saving €10bn, no year off the austerity programme.

And then, after everyone has taken a month off for Christmas, we came back to reality last week when Willem Buiter of Citigroup said that we needed a second bailout, echoing what the bould Leo told us ages ago and what Nouriel Roubini, "Dr Doom", had told us the week before.

One way Buiter says Europe could help bail us out is to cut the interest rate (which he says is 6 per cent -- it's that convoluted no one seems to really know) on the promissory notes. He makes the very reasonable point that this would not be a technical restructuring of our sovereign debt, therefore it wouldn't cause any kind of credit event, and he says it would also be a good way of showing some recognition for our efforts to be good.

Buiter also pointed out that banks all over Europe will soon have caught up with us and our banks before long and people will become a bit more lax about burning bondholders because there won't be any more capital -- public or private -- to put into banks. It is untenable that we would, under those circumstances, as a bankrupt country, still be paying punitive interest rates motivated by some kind of moral judgement on our irresponsibility, that we would still need to be taught a lesson, while everyone else apparently doesn't need to be taught the same lesson. It makes no sense.

And what does the Government do? When Buiter tries to do Eddie Hobbs and point out that we need a reduction on the promissory notes, that we should get rid of the credit card debt? They poo-poo him and say any talk of more bailouts is ludicrous and unhelpful. Noonan will live to regret that "ludicrous" comment, and anyway, what's so ludicrous about taking money for 3 per cent? Noonan, it seems, prefers to pay higher interest rates.

But meanwhile, there is €1.25bn to be paid out to Anglo bondholders this month and people are getting annoyed about it. So what do we get? We get Enda, in the Dail, last Wednesday, telling us that there are serious technical discussions going on about the promissory notes. No doubt if people get more exercised about the Anglo bondholders, a few other ministers will weigh in to say we should play ball because the quid pro quo will be that we save €10bn and year of austerity, blah, blah, blah.

And so the bullshit continues.

Sunday Independent