The European central bank (ECB) and the International Monetary Fund are at odds over the restructuring of the €31 billion of Anglo Irish Bank promissory notes which are being repaid by the state.
The ECB, part of the troika with the IMF and the EU that bailed out the state, has warned the current restructuring plan will cost Ireland billions of euros more in the long term, a concern shared by the Department of Finance.
However, according to a government source, the IMF is eager to press ahead with the plan to repay the loans over a longer period — probably around 30 years — on the basis that it would improve Ireland’s financial position in the short term. “That way, Ireland gets back to the markets sooner and it makes the IMF look good. It’s seen as a win for them,” the source said.
While ministerial sources say both the government and ECB want Ireland to get back to the markets soon, they do not want to do so at any price. “There’s no point signing a new deal just for the sake of it, especially if it’s going to cost us more,” said a source close to the negotiations. “Despite what some commentators are saying, this is real money we’re dealing with. We are talking billions [of extra debt], if we restructure the debt without dealing with the interest rate. That’s a truckload of extra money to pay back, and the Department of Finance and the ECB are concerned about it.
“Already, 20% of all the taxes we take in are paying down the national debt. There is a real issue of fairness and sustainability if we sign a deal that burdens the next generation with more debt, even if it helps us in the short term.”
Advertisement
The state is paying interest of 8.6% on the promissory notes, which have a 20-year repayment period. It is understood that a focus of the negotiations is securing a significantly lower rate of interest, ensuring Ireland does not have to pay more if the repayment term is extended.
It is largely accepted that a deal on the promissory notes will not be done by the end of the month, when the second annual repayment of €3.1 billion is due. Yet some ministers still hope for an agreement on postponing the repayment until a deal is done.
One said there had been a disproportionate reaction in Ireland to the comments by Ollie Rehn, the EU commissioner, questioning Irish debt restructuring. Rehn, seen as one of Ireland’s allies in Europe, rejected the notion of delaying the €3.1 billion payment. “The principle in the EU and in the long European legal and historical tradition is, in Latin, pacta sunt servanda — respect your commitments and obligations,” he said.
Michael Noonan, the fin- ance minister, has expressed some optimism. He said part of the negotiations had now moved to the collateral provided to the ECB for any restructured loan: “The ECB was never particularly happy with the level of collateral provided by the promissory notes, and it would like stronger collateral.”
Senior government sources say the possibility of an agreement has been hampered by public statements from Irish ministers. “I was in Brussels recently and the first five people I spoke to asked me why Irish ministers cannot keep quiet on this,” said one government source. “That has not helped our case.”
Advertisement
Speaking in Chicago on Friday night, Enda Kenny told an audience that Ireland will “regain its economic sovereignty” when it emerges from the bailout in early 2013.