Tuesday 21 January 2020

Brendan Keenan: Benefits of Anglo deal not tangible to public

NOTHING is ever simple with this Government. After the confusion and arguments over the household charge, it was never likely that something as complex and fraught as the saving of Anglo Irish Bank would go smoothly.

Perhaps Fine Gael and Labour ministers lack the practise at "choreography" that played such a large part in the peace process. Certainly everyone was flat-footed last night, as government sources claimed they had a deal on the €30bn of so-called "promissory notes" for Anglo (now IBRC) and the European Central Bank furiously denied it.

But it looks like Michael Noonan has got what he most wanted -- not being seen to hand over €3bn to IBRC by the end of next week. After having to pay senior bondholders of the banks in full, that would have been -- to use that famous word -- politically toxic.

The effects of the deal are much more difficult to describe. IBRC is wholly owned by the government. It would have paid the €3bn to the Central Bank, which provided the €30bn ready cash in the first place. Much of it was one state body paying another.

But there are real savings in the deal as outlined, although not nearly enough to make a huge difference to budgets over the next few years.

First of all, the deal covers only this year's repayment but makes little sense unless it is intended to eventually cover the whole €30bn -- and perhaps more.

A multi-year deal would improve the chances of avoiding a second bailout.

The reaction of some analysts last night was that a "bailout lite" would still be needed, perhaps with the extension of the date for repaying current bailout loans.

Even with the annual €3bn borrowing for promissory notes gone, Ireland will still have to borrow €15bn in 2014, and this may be more than can be raised in commercial bond markets.

In an analysis before news of the deal broke, Goodbody calculated that a deal like this would save the Irish taxpayer €4.5bn over the 10 years and reduce the budget deficit by an average 0.5pc a year, or €650m this year.

Goodbody also pointed out that even a €30bn postponement does not have a significant effect on the debt, whose size and growth until at least 2014 is a major concern. Nor does it make any difference to the gap between tax revenues and the cost of ordinary government services like health, education and social welfare.

Unless the government can do a better job of explaining the importance of this "primary" deficit, there is a risk that the deal will fuel demands for less austerity and outright debt default. There is also a risk that sour relations between Ireland and the ECB will hamper future negotiations.

In the meantime, the government avoids a "Black Wednesday", or whatever day the money would have changed hands, and has something to carry into the referendum campaign. A Yes vote might mean that a lot is forgiven, so far as Brussels and Frankfurt are concerned.

Irish Independent

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