Promissory Notes: We Need A Powerpoint Presentation!

Okay, here’s a real treat for all our fans of all things promissory-note related. A classic Burton-Lenihan exchange in the Dail today. My favourite bit:

Deputy Joan Burton: We need a PowerPoint presentation on this.

Deputy Brian Lenihan: We do not.

Deputy Jim O’Keeffe: We need lots of money for this.

Full text below the fold.

An Ceann Comhairle: The following arrangements apply pursuant to today’s order of the Dáil: a Minister or Minister of State shall take questions and the proceedings, if not previously concluded, shall be brought to a conclusion after 80 minutes.

Deputy Joan Burton: We would all like to sympathise with the Minister on his recent sad bereavement on the death of his uncle.

There are a number of questions I would like to put to the Minister arising from the discussions since the announcement on “Black Thursday” of the level of the banking crisis. I will begin with my first question. On yesterday’s Dáil record, the Taoiseach referred to the €31 billion in promissory notes, which the Minister initiated in respect of Anglo Irish Bank on his announcement on the Tuesday before Easter last, and which in the case of Anglo Irish Bank now amounts to €25 billion.

Minister for Finance (Deputy Brian Lenihan): Or will amount to that.

Deputy Joan Burton: Or will amount to that. I understand that €6.4 billion of that will be listed before the end of the year. The amount in the case of Irish Nationwide Building Society is €5.3 billion of which, I understand, €2.7 billion will be announced before the end of the year. The amount in the case of the EBS is €250,000. The Taoiseach referred to this as a mortgage. At the time of the Minister’s announcement of these as promissory notes, it was not absolutely clear what their impact would be on Government accounting. When I visited the Department of Finance—–

An Leas-Cheann Comhairle: I am anxious to accommodate as many Deputies as I can and if they ask succinct questions rather than make long preambles, we can have can have a dialogue across the House.

Deputy Joan Burton: I now understand that this is the equivalent of a national mortgage of €31 billion and that these mortgages have been negotiated at loan rates of current market rates, which at the time they were issued, and will be issued, run between 4% and, unfortunately, 6% plus. Therefore, that means that the €31 billion will carry an annual interest charge of €1.5 billion. Does the Minister accept that there will now be an annual charge of €1 billion to €1.5 billion in our national budget statements for the next ten to 15 years? Can he confirm that?

I understand that the adjustment or the interest charge for this year, which started some time around May when these promissory notes were issued, is €700 million. Has that been included in any revised estimates of the deficit for 2010? Can the Minister tell us how that will be treated in the final 2010 accounts?

I have a number of other short questions.

An Leas-Cheann Comhairle: I will call Members a few times if they——

Deputy Joan Burton: I want to give the Minister notice of my second question.

An Leas-Cheann Comhairle: I will call the Deputy later to ask her second question.

Deputy Joan Burton: It is a very important one.

An Leas-Cheann Comhairle: If the Deputy does not simply give notice of the question, she is asking the question.

Deputy Joan Burton: I want the Minister to be put on notice that I want to ask about the directors and executives of the banks. I want a comprehensive statement from him about the situation regarding proceedings, particularly in view of the fact that the former managing director of Anglo Irish Bank has taken refuge in the courts of the United States and on what implications this has for any kind of accountability by this gentleman and others, who have been directors or chief executives of banks. What will the Minister do to ensure that this particular individual is made accountable to the Irish system? He has now got refuge in the United States.

Deputy Brian Lenihan: First, in regard to the promissory note, which is an important question, to understand the exact circumstances surrounding the note – Deputy Burton fairly accepted the correction on that – the position is that to date, €18.88 billion in promissory notes have been issued to Anglo Irish Bank in three notes issued on 31 March, 28 May and 23 August. The note issued on 31 March bears an interest rate of 4.1745%; the note issued on 28 May bears an interest rate of 4.5693%; and the note issued on 23 August bears an interest rate of 5.1316%. The outstanding note will have a value of €6,400,000,000. It will be issued before the end of the year and the interest rate cannot be fixed for that as of yet.

That amount will represent a sufficient amount to ensure that Anglo Irish Bank can meet its regulatory capital needs. The final value for the note will be settled when the bank’s loan transfers to NAMA are complete and the bank’s capital requirement can be more fully determined subject to the relevant EU approvals within the context of the restructuring plan for the bank.

The overall final value for the note will be paid to the bank in instalments over an estimated ten to 15 years. The duration of the repayments to Anglo Irish Bank will depend on the final value of the note and any interest rate accrual on the promissory note. It is important to understand that the actual payment of the interest is deferred in cash terms.

Deputy Joan Burton: I am aware of that.

Deputy Brian Lenihan: No, but I refer to the actual payment of the interest not just the capital; the interest also is postponed in cash terms to the end of the repayment term. However, in accountancy terms, the obligation to pay the interest is treated to have arisen when the obligation accrues. The repayments of the note will be made on an annual basis until the final principal value of the promissory note, together with the appropriate interest rate on the note, has been covered.

Take the current €18.88 billion for present purposes, it is expected that note will be paid off over ten to 15 years depending on whether the interest is paid annually or added to the principal. Under the terms of the promissory note, the note will be paid in full at the time of any winding up of the institution. This condition is in line with the required process for the winding up of any business.An interest rate is included in the terms of the note to enable the bank to value the note at par on its books and therefore achieve the capital benefit the bank requires to meet its regulatory capital requirements. The principal value of the note, together with the appropriate interest rate, will be paid in instalments over ten to 15 years depending on whether the interest rate is paid annually or added to the principal.

Deputy Joan Burton: Will that be about €3 billion a year—–

Deputy Brian Lenihan: No, I would not accept that figure.

Deputy Joan Burton: —–when all the notes are issued?

Deputy Brian Lenihan: No, but in GGB terms it has been calculated, for example, next year as being a sum of about €1.5 billion for accountancy purposes even though there is no cash sum of that amount transferring.

Deputy Joan Burton: That is the interest whereas the capital sum is approximately €3 billion a year.

Deputy Brian Lenihan: It is €1.5 billion next year.

Deputy Joan Burton: No, the Minister is wrong.

Deputy Brian Lenihan: We are both right and wrong. Deputy Burton is talking accountancy while I am talking money. The capital sum is already paid for general government balance, GGB, purposes. That is why there is a spike in the GGB this year. The interest will be factored into the GGB next year, although the amount actually paid next year will not reflect that.

Deputy Joan Burton: Yes, but—–

An Leas-Cheann Comhairle: Please Deputy Burton, allow the Minister to finish his reply. I also want to open the session to other Members.

Deputy Joan Burton: We need a PowerPoint presentation on this.

Deputy Brian Lenihan: We do not.

Deputy Jim O’Keeffe: We need lots of money for this.

Deputy Brian Lenihan: The interest rate of the promissory note is currently fixed according to the ten-year bond yield.

Deputy Joan Burton: Will the outturn for this year be higher because of the €700 million adjustment in respect of interest this year?

Deputy Brian Lenihan: To date in 2010, the Government has committed to giving cash of €31 billion, as I outlined already, in the three promissory notes. As the actual cash is not being paid up-front to the institutions, interest must be paid so the institutions can value the notes at par on their accounts. The terms of the notes allow interest to be rolled out after the principal sums have been repaid. The interest rate is based on the ten-year Government bond yield.

The payment of interest on the promissory note is expected to be rolled forward after the principal payments. For general government accounting purposes, the interest must be accrued to the years in which it arises. The accrued interest, therefore, in 2010 is currently estimated at just over €700 million—–

Deputy Joan Burton: No.

An Leas-Cheann Comhairle: Deputy, please allow the Minister to continue without interruption because we need to progress to other questions.

Deputy Brian Lenihan: —–even though there is no actual payment reflecting that. This will rise to approximately €1.5 billion next year, but again no actual payment will reflect that, before declining in future years. It is from there I suspect the Taoiseach developed the analogy of the mortgage although I do not think such an analogy is necessarily useful in this context.

Deputy Joan Burton: Yes, I think it would help—–

An Leas-Cheann Comhairle: Deputy, please allow the Minister to address the second question. We have been on only one question for 15 minutes.

Deputy Brian Lenihan: The reason the notes carry interest is so they can be valued at par-for-capital purposes.

Deputy Joan Burton: Not everyone would agree because—–

An Leas-Cheann Comhairle: I call the Minister to respond to the second question.

Deputy Joan Burton: —–there is a longer period of zero-rated bonds.

An Leas-Cheann Comhairle: Deputy Burton cannot monopolise the session.

Deputy Brian Lenihan: It is estimated the annual debt interest costs on cash borrowings, based on current interest rates, will be approximately €200 million beginning in 2011. The cumulative interest costs on the cash borrowings will increase as the further €3 billion in cash payments are made each year.

An Leas-Cheann Comhairle: Will the Minister respond to the second question?

Deputy Joan Burton: I want to ask another question.

An Leas-Cheann Comhairle: No, Deputy Burton, please. Other Members are indicating and we have spent 15 minutes on this first question. I call Deputy Noonan.

54 thoughts on “Promissory Notes: We Need A Powerpoint Presentation!”

  1. I’m still confused.

    The principle (€31bn):

    -In Accounting terms: This will all be on the GGD this year (32% GDP)

    -In …ahem “money” terms: It will be €2-3bn a year

    The interest (going to Anglo and INBS – rather than our borrowers):

    -In accountancy terms this will be added to the GGD on a yearly basis

    -In ‘money’ terms: We won’t actually pay it until the promissory notes expire in 10-15 years time.

  2. Looks like Joan has taken some method acting lessons.

    Note to Jim o Keefe, its not money, its debt.

    Default and be damned – this is either purgatory or maybe limbo and its coldddd
    At least hell has central heating and squid do not have souls so at least we will have some peace from those demons.

  3. Methinks that Deputy Burton has not been spending much time in meetings if she has the view that Powerpoint will solve any problems.

    From my reading of it, Rob S has it correct…seems simple enough to figure out.

  4. My two favourites:

    ‘Deputy Burton is talking accountancy while I am talking money’

    ‘The interest rate is based on the ten-year Government bond yield’

    What happens if our 10 year bonds blow out as far as Greeces?

    That’s some horrific interest bill to be rolling up.

  5. Interest roll-ups — good enough for property developers since 2008, so why not the government?

  6. OT: sorry, but relates to why there will be no prosecutions of anyone in the banks…..

    AKA “why Fachtna’s letter is of significance” Oh, in case anyone thinks
    I am being rude, offensively rude anyway, he has asked me to call him Fachtna, as we were colleagues.

    Read “How to prevent yourself going to gaol, (“Jail” for any yanks) for bank tampering …..” on my blog. Please, I need the readership figures.

    On Topic:
    Isn’t great that all our politicians now speak in terms of “billions” (or billons!) instead of their usual “millions”. That’s progress! We must all be RICH!

  7. “We are both right and wrong.”! Wonderful exchange.

    But getting down to the nitty gritty, is anyone able to produce a spreadsheet (or powerpoint presentation!) which shows a) from the government/taxpayers’ and b) from Anglo’s point of view how the promissory notes will work, so that we can see from the taxpayers’ point of view when the costs will hit and how much interest will be repayable. So for those who say “it’s simple”, here’s the challenge – let’s see a spreadsheet (a link to a spreadsheet uploaded to google docs would be terrific).

    I am utterly confused over promissory notes being honoured over a 10-15 year period. Is that the lifespan of the Anglo recovery bank? My understanding was that the promissory notes would need be honoured in cash when the bondholders and depositors were repaid their money, and at that point the debt becomes real for the Irish State, but I could be wrong.

    So spreadsheets anyone?

  8. @D_E

    That was the sort of presentation that would help, but a) who’s position is the spreadsheet drawn from and b) why is there €3bn int in year 1 and every other year even though there is presumably some “principal” repayment?

  9. @Jagdip Singh
    I could be wrong but I have assumed that the interest rate is fixed and based on the initial value of the promissory notes.

  10. @D_E
    I think you are right, the interest rate on the promissory is fixed at point of issue (hence the three figures we have seen so far for each of the adjustments to the note). The latest adjustment has not been added, presumably they are waiting for the ten year rate to, eh, normalise.

    The problem is that each year we will convert an amount of the promissory note to real cash by selling bonds. While 3 bn a year is being talked about, the truthiness is that the terms of the promissory notes allow for more as required by the banks. Or presumably by the ECB (if they start to limit repo).

    Let’s assume, though, that it is 3 bn a year for ten years. The 3 bn will be sold at market rates. Presumably it doesn’t have to be sold at ten year duration, so perhaps focusing on ten-year rates is not helpful, but that’s probably a bit of a red herring. Whatever the situation in Ireland, I don’t think we can assume that interest rates are going to stay low. So we are probably looking at at least 5% on these bonds. This will be real interest cost each year (it won’t be rolled up). Hence we will have an increasing cash interest bill each year and a consequent squeeze on the exchequer.

    And then, at the end of the ten years, we will have something like 8 bn of accrued interest on the promissory to be paid in a lump. I am sure that the government are hoping that the wind-up of the banks won’t require that 8 bn, but hope is not a strategy!

  11. I’d hazard that even Anglo credit submissions in their heyday had to have more detail and explanations than what we have been given on this.

    How difficult is it to simply explain this?

    Either they don’t want to or can’t. My guess is the latter which is more frightening than the former.

  12. This is bound to be obvious to someone with an accounting background but:

    What use is the interest we are paying Anglo and INBS if they don’t get it until 2020+? Is it enouhg for their books just to know it is incoming?

  13. Will the investment banks who are advising the state with regard to debt restructuring benefit from whatever betting slips they create if / when the goverment defaults ?

  14. Will the investment banks who are advising the state with regard to debt restructuring benefit from whatever betting slips they create if / when the goverment defaults ?

  15. Will the investment banks who are advising the state with regard to debt restructuring benefit from whatever betting slips they create if / when the goverment defaults ?

  16. Will the investment banks who are advising the state with regard to debt restructuring benefit from whatever betting slips they create if / when the goverment defaults ?

  17. Sorry about the repeated posts here – but perhaps it needs to be repeated.

    Something is very rotten in this state – anybody with a nose can smell it.

  18. I understand Malcolm Gladwell rightly rubbished the use of Powerpoint at his presentation at UCD last year. If Joan Burton is looking for anything is should be an Excel spreadsheet!

    The effect of rolling up interest is not clearly explained. If we keep rolling up interest on these promissory notes then the interest costs will balloon, as is normal in the world of compound interest. This will be compounded by the next note being at the current 10 year rate.

    Can somebody give the amounts for the first three notes and the likely rate for the upcoming fourth note? It will be very easy to do an excel sheet to show that.

    At the end of the day, unless there is substantial inflation over the next 15 years we are in serious trouble. Could currency wars be the answer? Could global QE and inflation save us from military wars?

  19. €8.3bn 1) 4.1745%
    €2bn 2) 4.5693%
    €8.58bn 3) 5.1316%

    I wonder how long they wait to issue that last note though (€6.4bn) – bond yields up t0 @6.3% now.

  20. “Could global QE and inflation save us from military wars?”

    Fear Uncertainty Doubt – FUD as it is commonly known. A tactic used to scare people into making irrational decisions.

  21. “That amount will represent a sufficient amount to ensure that Anglo Irish Bank can meet its regulatory capital needs.” I don’t understand this bit. Regulatory capital is a cushion against unlikely events. For example in AIB’s case the Minister fully expects to recover his “cushion” investment. Why in Anglo’s case does the cushion seem to be already written off?

    Accruals versus Cash. Accruals are counted in GGB but this is just a statistical memorandum. Cash requires access to the bond markets or investment by the NPRF but does not istelf contribute to GGB as they have already been accrued.

  22. My calculation was incorrect. Forgot about the €250m for EBS and the initial €2.6bn for INBS. I assume these were in the first note but can’t confirm.

  23. There’s a real curiosity lurking in the middle of all this parliamentary jousting.

    In the exchange quoted, Lenihan claims: “Take the current €18.88 billion for present purposes, it is expected that note will be paid off over ten to 15 years depending on whether the interest is paid annually or added to the principal. Under the terms of the promissory note, the note will be paid in full at the time of any winding up of the institution. This condition is in line with the required process for the winding up of any business.”

    I don’t understand this. I mean, I don’t think it’s part and parcel of corporate insolvency rules that when a business is wound-up, its liquidator is entitled to accelerate payment on an instrument or contract where the payment receivable is spread over time. I thought it’s the case that the liquidator takes the benefit of the agreement, and may well be entitled to sell it to a third party, but unless the contractual debt has an acceleration clause, he can’t call on the debtor to pay sums due immediately.

    So why has Lenihan apparently included an acceleration clause in the PNs? And am I right in thinking he’s being quite misleading in representing the use of such a clause as commonplace or somehow required by law?

    I smell a poison pill, where the acceleration clause is inserted in the PNs to deter a future government from winding up any of the recipient banks.

  24. @ Libero

    Certainly if they were just normal government bonds you would be right. The liquidator would have to sell these on the market. I suspect it is a regulatory requirement. These are non marketable instruments so probably the regulator needs a guarantee that they would be redeemed at par in a liquidation.

    I would doubt that it is a sinister stitch up to deter future governments from a liquidation.

  25. @ Brian Woods II

    What, presumably pre-existing, regulatory requirement is that?

    And in providing a rationale for the insertion of an acceleration clause in the PNs, Lenihan didn’t refer to any particular requirements of banking law and regulation, or the circumstances of the recipient banks. Far from it: “Under the terms of the promissory note, the note will be paid in full at the time of any winding up of the institution. This condition is in line with the required process for the winding up of any business.”

  26. @Libero
    “I smell a poison pill, where the acceleration clause is inserted in the PNs to deter a future government from winding up any of the recipient banks.”
    I smell it too. Is it on my shoes or yours?

  27. @Libero

    I’m guessing that the requirement is driven by regulatory rules rather than a stitch up, but maybe I’m wrong. Some of these rules are not written in Tablets but are made up by the Regulator as he goes along, and there is also the EU to persuade.

    My naivete points me away from a sinister motivation.

  28. Cost for the bank for the PN = 0 (?)
    Income for the bank from the PN = approx 5% of the capital of the PN

    Income – cost = Profit = Retained earnings = Capital available for loss absorption

    Defaulting on the PN = Sovereign default

  29. A man of Lenihan’s education should be familiar with 19th century novels.
    Trollope is full of profligate scions or the aristocracy and their money dealings.

    He that liveth by promissory notes, dieth by promissory notes.

  30. So…

    €31bn has to be borrowed from somewhere over the next 10 years. Lets be kind and assume a bond market rate of 5% and we get €1.5bn in interest payments to our lenders.

    PLUS

    An interest rate we are paying INBS and Anglo so the notes are “on-par capital” is another €1.5bn a year.

    Is this not an extra €3bn per annum rather than the @€1.5bn figure people are arguing about?

  31. I did the spread sheet I was talking about.

    IF we take the four Anglo Notes as follows:
    1. €8.3bn issued on 31/03/2010 at 4.1745%
    2. €2bn issued on 28/05/2010 at 4.5693%
    3. €8.58bn issued on 23/08/2010 at 5.13%
    4. €6.4bn issued on 01/12/2010 at 6.0000% (estimates)

    AND we assume roll up of all interest for 15 years to 2025

    THEN the total owing at the end of 2025 will be €53.75bn made up of the original borrowing of €25.28bn and €28.47bn.

  32. @zhou
    You need to include, I believe, 5.4 bn for INBS and 900 mn for EBS. No?

    There’s also the question of the 5 bn euro the INBS has issued in debt to itself.

  33. Could be as easy as total borrowing needed for the state for the PN is 15 years*3bn per year = 45 bn which is equal to 30 bn capital + 10 years *1.5 bn per year of interest.

    Paying/raising all 30bn at once might be too much so the cash/borrowing need is spread out over 15 years. In other words:

    Capital is raised over 10 years, then the cost of the rolled up interest is raised in the following 5. Then finally the PN is matched with actual money.

  34. I was just looking at the Anglo figures as they were the subject of the discussion in the Dail.

    My figures do not square with the Minister’s. For instance, I calculate interest on the €18.8m (first three notes) to the end of 2010 at €470m only, whereas the Minister estimates €700m. Even if I add in a fourth note as per my assumption I still only get €500m interest to end of 2010.

    I also get interest of €1.9bn on the €18.8 for 2011. This increases to €2.29bn if I include a fourth note as per my assumption above.

    We need to know exactly what the Minister means by “frontloading interest”.

  35. @zhou
    My excel gives me the same figure for 2010 interest…

    If however, you add in INBS and EBS:
    http://www.thepropertypin.com/viewtopic.php?p=439354#p439354
    (Had to put it somewhere I could format it!).

    It still doesn’t add up.

    If you change the final Anglo promissory to 15 October and 6.5% interest, you get the right number for the current year…

    I don’t see how you get interest of 1.9 bn for 2011… as far as I can see, the rolled up interest doesn’t attract interest, just the remaining amount of the promissory – see grumpy’s calcs in the same ‘pin thread.

  36. @Patrick

    In that article I believe he is merely talking about the principle (capital).

    i.e. the €30bn figures divided by 10 years rather than:

    1) The €1.5bn going to Anglo / INBS

    2) The €1.5bn going to whoever WE are actually borrowing this from.

    Its like we are borring at a rate of 10%+ in effect

  37. @ Rob S

    Will the €30 billion borrowing requirement not supplant the Anglo INBS PN’s as its borrowed. So as the borrowing goes up and cash is injected into Anglo to pay off bonds etc – the promissory notes and the interest on the PN’s on an accruals basis will come down.

    What get’s me is that this should be simple and explained such that at least the countries top economists and financial experts can instantly see what’s going on rather than having to make assumptions. I just wonder does Lenihan and his lackies in the DOF have a clue themselves – theyve already got so much wrong ?

  38. @Hoganyoganmahew

    Thanks to link to that on the pin. Grumpy’s spreadsheet is informative. However, I do not see how interest charges would not attract further interest, albeit that the roll up would be less than I had calculated.

  39. @zhou
    I dunno. I (and others) have always assumed that further interest would only be on the principal, but there is no real basis for that assumption. You are the first that I’ve seen to raise the possibility that the interest might also be on the interest. It is a disquieting possibility. Interest never sleeps and all that.

    I think we need to know more about the T&Cs of these promissory notes.

    It is already bad enough that in a liquidation the entire remaining promissory and rolled up interest becomes due.

  40. @hoganmahew

    I have rejigged my calculations to assume a €3b pay down in each year.

    In the first year I apply it to the 23 August 2010 note being the one bearing the highest interest. (This may be incorrect if the cash was handed over earlier but it will do for illustrative purposes.)

    Thereafter I applied the annual €3b pay-off to the note bearing the highest interest rate in that year so as to clear the most expensive debts first.

    In that scenario, we will pay off the noted by 2018.
    Interest will gradually decrease from €0.82bn (2011) to €0.12bn (2018).
    that interest will be paid off with borrowing with the actual amount being taken out of the exchequer each year being the interest paid on the borrowings.

    If we optimistically assume interest rates of 5% on the borrowings then the actual cash paid each year by way of coupons on those bonds will increase from €0.15bn in 2010 to €1.35bn in 2018.

    From 2018 we will be left with an additional €26.9bn in debt generating €1.35bn in interest payments each year (assuming 5% yield!).

  41. Kevin Cardiff: National Debt will be €150m next year therefore we can expect interest bills of €7.5bn in 2011.

    Does this include the €1.5bn interest (ish) we are paying INBS / Anglo as well as the the interest costs of borrowing the €3bn per year? Which you could guess at being 0.05% X 3bn = €150m.

  42. Actually scratch that for a moment:

    Le tme take the approach of how much the €30bn will cost us per annum in terms of pure interest (rather than the money we are paying INBS).

    First does the €30bn go on to our GG Debt straight away at end-2010 or will it only increas the debt by €3bn per year as we borrow it?

    I will assume the latter and €3bn a year:

    2010: 0.05% X 3bn = €150m but we didn’t have a full year so lets say €100m.

    2011: 0.05% X 6bn = €300m

    2012: 0.05% X 9bn = €450m

    2013:……………….. = €600m

    2014:…………………= €750m

    2015:…………………= €900m

    2016:…………………= €1050m

    2017:…………………= €1200m

    2018:…………………= €1350m

    2019:…………………= €1500m

    2020:…………………= €1750m

    Adding it all up: €9,850m.

  43. @Rob S

    Those are the figures I got.

    “Does this include the €1.5bn interest (ish) we are paying INBS / Anglo as well as the the interest costs of borrowing the €3bn per year? Which you could guess at being 0.05% X 3bn = €150m.”

    I made this mistake too and then realised the two sets of interest should not be aggregated as the €3bn per year is being used to pay off the interest on the promissory notes. Accordingly, only the coupon on the €3bn per year will have to be found.

    Also, I calculated (based on fourth note metrics as assumed above) that the promissory notes and rolled-up interest thereon will be paid off in 2018 with a final payment of €2.9bn. Thereafter the interest per year will be on €26.9bn. It will not continue to increase by €3bn per year.

  44. Sorry Zhou, I don’t think I understand your aggregate point (my failing of course).

    Lets just take Anglo 2010:

    Anglo<<€2.5bn principle<<<<>Interest(€500mguess)>>markets?
    Gov
    Anglo<<€500m interest(guess)<

    What did I do wrong?

    Are you saying that rather than pay the €3bn per year in pure capital, we will pay the interest bill first out of the €2.5bn and then simply pay the remainder of the capital?

  45. @Rob S

    I don’t think you have gone wrong. I momentarily thought the government would have to fund the interest on Govt borrowings in addition to interest on the promissory notes. This was incorrect because the borrowings will be used to finance the interest on the promissory notes. I think this is the distinction Brian Lenihan was making between accounting liabilities and actual monies being paid out.

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