Latest UCD Research Bulletin

Edited by Kevin Denny, UCD’s latest Research Bulletin is up here.

Low-cost funding

Minister Noonan’s comments today, as reported by the Irish Times, are worth noting:

Mr Noonan has indicated he may ultimately seek to use the euro zone’s bailout fund to refinance the cost of bailing out Anglo.

“The ECB would favour that because it would improve their collateral significantly,” Mr Noonan said. “But that would be of little use to Ireland unless we got the commitment to ongoing medium term low-cost funding from the ECB.”

I think this is very important (although I would say eurosystem rather than ECB in the last sentence).   Whatever you think of the Anglo/INBS bailout’s, as a financing mechanism the promissory notes/ELA are an excellent deal (with an ultimate interest rate to the State estimated at 1 percent after factoring in CBI profits that go to the Exchequer).   The problem is that we have to pay them down relatively quickly (creating large near-term funding needs as well as giving up a low interest rate), so we want to restructure to lengthen the term.   The ECB sees the arrangement as too close to monetary financing for comfort to begin with. 

There is a danager that restucturing — of whatever kind is on offer — becomes a political imperative.   One wrinkle is that the commitment to keep the ELA in place in a way that is consistent with even the current promissory note repayment schedule might be a bit shaky.  There might be a role for the EFSF/ESM to shore things up.   But any such restructuring must not lose sight of the extremely low interest rate we currently have.

Promissory note news roundup redux

A couple of days ago I was giving out that the proposed deal lacked nuance given the time spent trying to reduce the payment by the government to IBRC for the promissory notes which would, in turn, pay down the ELA issued by the Central Bank of Ireland. Now that news of the deal has come, with much scratching of heads and flowing of flow charts, for some reason, we can all agree that not very much has happened at all.

Really what’s just happened is the government has been given a loan by the Bank of Ireland for a year, after which the previous status quo reasserts itself. The ECB hasn’t budged in its position that Ireland must get the ELA written off quick smart. Bank of Ireland’s shareholders must be feeling ambivalent about the deal which sees their holdings of Irish debt increase, albeit for a short time. The taxpayer is still on the hook, of course. But the people I feel sorry for most are the journalists who have to explain what just happened[1]. My sense is that in the complex negotiations that went on, the ECB won, hands down.

To the roundup then. Karl Whelan is underwhelmed. FT’s Alphaville gets the story mostly straight, Constantin does a good job of spelling things out clearly, and the IrishTimes gets the story a bit muddled but mostly right.

[1] This is a lie.

The Fiscal Compact and Wider European Reform

I agree with Michael O’Sullivan (op-ed in today’s FT available here) that the Fiscal Compact should be debated in the context of a wider European reform agenda and that the Ireland should positively engage in the wider reform process.  My view is that the implementation of the Fiscal Compact raises the probability that other reforms will be delivered; his ultimate position on the referendum vote was not obvious from his article.

(The FT also carries an interesting analysis article on the lessons from Iceland here.)

Statement by Minister for Finance to the Dáil on 31st March Promissory Note Payment

Statement here.