Statement by Minister for Finance to the Dáil on 31st March Promissory Note Payment Post author By Philip Lane Post date March 29, 2012 Statement here. Categories In Uncategorized 137 Comments on Statement by Minister for Finance to the Dáil on 31st March Promissory Note Payment ← HM Treasury and the Financial Crisis: Review → The Fiscal Compact and Wider European Reform 137 replies on “Statement by Minister for Finance to the Dáil on 31st March Promissory Note Payment” Does this mean that the interest rate on the bond will be NAMA’s rate of 6 month euribor (1.08%) ? Copying and pasting a previous question: Can someone explain Bank of Ireland and NAMA’s role in this? “Ultimately, it is intended that this long term Government bond will be financed for one year, on commercial terms, with Bank of Ireland who may in turn refinance the bond with the ECB. While this transaction has been approved by Bank of Ireland’s board it remains subject to the approval of the Bank of Ireland shareholders. As a short term interim measure, pending the results of Bank of Ireland’s shareholders’ vote, the financing of the bond will be a collateralised facility provided by NAMA to IBRC on equivalent commercial terms as the financing with Bank of Ireland. NAMA is in a position to facilitate this collateralised financing from its own funds. ” http://www.finance.gov.ie/viewdoc.asp?DocID=7195 If the impact is €90 in additional interest this year then that implies an interest rate more like 4% I think. Chaotic scramble behind the goal line for the ball as the feeble forwards somehow get it back to Noonan at 10 who finds touch on the one yard line. Why the convoluted method of swapping paper? Eoin bond…are you there? Is this a technical default? No it is not a default and the interest rate will be around 6.8%, same as our government bonds…fair value and all that. Looks like the ecb haven’t bought into the idea of Ireland lending to itself. I guess that’s why BoI is involved. Looks like Noonan et al have nothing to show for their efforts, but it looks like the ‘interim’ solution can be reversed if Noonan gets the ECB’s approval (so that’s positive). We have to see the interest rate, but my guess is that, right now, we haven’t saved any money (I wouldn’t be too surprised if it’s marginally more expensive). “Ultimately, it is intended that this long term Government bond will be financed for one year, on commercial terms, with Bank of Ireland who may in turn refinance the bond with the ECB. ” What does that mean? If the govt give a bond to IBRC, why is there a need to ‘finance’ it through BOI? It sounds to me like indirect government borrowing? The interest will no longer be ‘circular’ within government. The private sector will now get a large cut. I have to wonder, as I read it, whether this a clear negative for the State as against the existing PN position. Just hacked in to the video-ref – and unbelievable as it sounds, looked to me as if the ref rucked the ball and passed it to Noonan! … Is nothing impossible anymore? Last two paragraphs: “While this development in relation to the end March payment is a positive development we must keep our eye on the greater benefits which would derive from the re-engineering of the promissory note and also the potential improvements for the continuing banking sector which could also stem from the ongoing technical discussions. “It is for these reasons that we must look at the recent developments as what would be an initial step to facilitate a project where, if we are successful, it will be in the medium term rather than immediately. These discussions will continue and the Government are focused on developing an alternative solution to the promissory note arrangement in IBRC. The ongoing discussions may also explore options to refinance the long term Government bond issued in settlement of the March 31 payment. We all want to arrive at a successful conclusion that is in the interests of Ireland and the EU.” The “the potential improvements for the continuing banking sector” might be a reference to the trackers as presumably IBRIC is not continuing. And/or the involvement with BoI to the benefit of BoI. And then I share the concerns of posters above. The last bit certainly keeps the door open that this bond will be revisited, but as David O’Donnell notes, if the PNs shift to being sovereign bond debt there is a qualitative difference and it might not be so easy to undo. I too would very much welcome the analysis of Mr Bond and/or other qualified posters. @ JR Looks that way. Buying the LT bond from the market, via BOI intermediary, with ECB funding. Much ado about nothing. Keeps the advisers in Dublin busy and well paid…A modern welfare version of the olden days employment of the Irish to build roads to nowhere /everywhere. “This approach reinforces the commitment of our European partners in assisting the State in its path to recovery. I, and the Irish Government, would like to thank all parties to these discussions for their constructive approach and positive engagement in this regard.” How magnanimous of the ECB to allow us to convert dodgy paper to real sovereign government bonds. As Ahura points out the ECB weren’t buying our lending to ourselves approach, hence the tortured mechanism through NAMA and BOI. It looks like NAMA and BOI will be picking up nice money, 90m? So we can wave Goodbye to the 31b. If the bonds are the 2025 bonds Bloomberg were quoting them yesterday at 6.93%. Where is removal of the trackers from the banks in all this? To follow later? That’s really the reason for all this, right? Or is this now just a liquidity play only? @ JR/Paul W ECB wants this chunk of 3.1bn in Anglo and ELA exposure to be wiped out on schedule. So they don’t want this 3.1bn to be directly recycled back into ELA, or ECB repo, with Anglo as the counterparty (to either ECB or any part of ESCB, ie CBI). So NAMA short term finances (given time constraints), and BKIR ends up being the ultimate middle man, the ECB now facing a fully recapped private sector bank, instead of an insolvent state-ownded wind down vehicle. BKIR pockets 1.35% for a year. The actual bond is a brand new one, issued by the government, and hence net recycling to them the 3.06bn cash payment This doesn’t appear to me to be a deferral in any sense of the word. The state is paying back the ECB on time and exactly as previously agreed. In a separate deal it is then issuing €3.1bn of debt, which is selling to a captive entity i.e. NAMA, at open market rates (90m over 3/4 of the year = 120m annualized / 3.1bn = 4% increase in interest costs). Whether they sell this to BoI or not is moot – if it’s at commercial rates they could just as easily sell the loan to the market or any other investor. The whole point of this deferral exercise was to lock-in ECB funding at below-market rates, so how is this exercise meaningfully better than the NTMA issuing €3.1bn of sovereign 10y bonds at 8%? @Bond Eoin Bond If the bond is a brand new one as you say, what is the duration? @Rob S 3:37 Great question. Re ” NAMA is in a position to facilitate this collateralised financing from its own funds ” As I understand this, the Promissory Note for ¢3.06 bn has now been switched into An investment-grade security backed by a pool of bonds, loans and other assets owned by NAMA. ITs commercial paper backed now by more solid securities rather than the previous risky PN. We should expect to get more detail later. @ BEB Thanks for that. So indirectly (new) borrowing what was paid back. @ CP Honohan said it would be the Irish 2025 bond, so thats the working theory Probably a stupid quetion but given that BOI got ¢7.5 bn in LTRO, is NAMA excluded from drawing down LTRO ? http://www.bankofireland.com/fs/doc/publications/investor-relations/preliminary-results-announcement-presentation-final.pdf What seems to be hapenning here is that IBRC funding (ELA) via the pro note is stopping on schedule and being replaced by non-ELA funding via BOI repo – for (so far as we know) 12 months. As a citizen that was more than open to accepting a ECB bribe in return for my vote, I will be voting no to the referendum on this basis and I suspect many others will be considering their position once this new reality sinks in. @Bond Eoin Bond Thanks. So we are issuing a bond repayable in 13 years (yield 6.93) to fund the repayment of the PNs due Saturday in the amount of 3.06b.? Blind Biddy has reviewed the hacked video-ref and she reckons that it was the referee, and not Noonan at 10, who rucked the ball away from the feeble forwards and kicked it to touch on the one yard line! This must be some neu form of inconclusive but what it says about the state of the wonderful game I leave to the discretion of our erudite spectators. @ CP Yes, but again, the bulk of the coupon is going to a state owned entity in IBRC @Colm NAMA can’t access LTRO. What seems to be happening is we are cleaning out all the cash out of NAMA while awaiting BOI shareholder approval. Why they couldn’t anticipate the shareholder approval requirement beats me. I suppose Wilbur will vote yes after the Government gave him such a sweet deal. Coupled with the State shareholding that should see it through. It would be some mess if shareholder didn’t approve. The promissory note has not been restructured here – they have just amended the method of settling the payment. Further, the ECB, at least technically, is not involved in the ‘agreement’ – they just end up taking normal collateral for normal repo from Bank of Ireland, like any other private sector bank (obviously they would have to give their thumbs up informally). But clearly they were unwilling to keep their expsoure to IBRC, whether via CBI or direct via repo, at current levels, and wanted it reduced down as scheduled. No “precedent” has been set from their point of view, and there can be no claims of direct monetary financing. ‘Trappist Monk’ Karl Whelan a While Ago ‘Is it likely that the ECB will agree at a later date to a more comprehensive restructuring of the promissory notes allowing for a systematic payment deferral? I would guess not. While you could argue that a deal on the current payment shows some flexibility on the part of the ECB, an alternative viewpoint is that six months of “discussions” failed to get anything other than a fairly meaningless one-off deferral. If a shorter-term deal is struck, my guess is that it will occur because the ECB are hoping that the EU will provide the funds before March 2013 to allow the promissory notes to be retired. Such a deal would see EFSF or ESM providing a long-term low-interest loan to the Irish government, which would then provide the money to IBRC in return for the promissory notes, with the money then used to pay off ELA debts.’ http://karlwhelan.com/blog/?p=218 No comment! @Eoin, do you know how Minister Noonan calculates an (additional, presumably) cost of €90m to the Exchequer deficit in 2012? @ Jagdip Don’t see how it increases deficit, think he was actually trying to downplay any suggestions that the 90mn was what we saved, we really save much more overall? I get 90mn via 3.45bn x .75 (9mths) x 3.5% (8.9-5.4). I’m guessing on a lot of this, but it seems to make basic sense? @Philip&all Pesonally I think this might be positive (but still far from satisfactory) move in the right direction in dealing with something which is very difficult to deal with . IMHO Minister Noonan also clearly indicates that Ireland is not giving up on this and intends to regularly “revisit” this problem. However I am slightly confused about the GDP/deficit calculation: According to Minister Noonan : (Quote)”The State still has a very sizable exchequer deficit of 15.8BN euro over public spending over revenue.”(End quote) So if the 3.06BN is part of the IBRC/Promissory note saga (which was accounted for in the massive budget deficit of 2010) then the “general” budget deficit for 2012 should be around 12.7BN. GDP is approximately 162 BN and the deficit target for 2012 is 8.6% however 12.7BN indicates a budget deficit of 7.8%. I am aware there is a “nominal ” GDP factor in play (which is lower than the current GDP figure) however would it not be better for us to start quoting the actual figure as we work our way down towards a 3% deficit? IMHO it would be ” good politics” if we were to refer to the figure of 7.8% (especially when we consider that even Holland is expected to have a deficit of just under 5% of GDP in 2012 and 2013) as it might be easier to negotiate more favourable repayments ,and look good globally, if we could demonstrate that we are close to reaching an “average”budget deficit by Western European standards in the very near future. The additional net cost of €90m (which is how I read the statement) presumably would be the additional debt cost of the €3bn of 2025 Government Bonds less an assumed return on the €3bn of cash that is retained in the coffers. While the coupon is being paid to IBRC, I don’t believe that this part would be reflected in the Government accounts. Effectively, we have €3bn more debt than we had budgeted for and we also have €3bn more cash than we had budgeted for. It’s a negative version of the carry trade. The benefit that Minister Noonan is stressing is really a cashflow one – we have not paid out any cash as we were able to refinance the €3bn liability and extend the ultimate repayment out to 2025. Intergalactic text from Seven_of_9: Hi! Have you surpassed Japan yet? ‘ @Ceterisparibus Tks for that. Its nasty. I’m voting no. They want PN’s consolidated into NAMA’s money backed by its assets. I await this list to tease this out further with more agreeable explan of logic involved, but BOI has access to LTRO, so why not deal directly with BOI apart from view maybe BOI needs further recap so nothing available there? All that ‘complex’ negotiation and all they get is a crappy deferment into a CDO. Nothing about all the rest of the PN’s. The olde Sleepy Hollow ECB horseman has taken another head from the Honahan gang! To be paraded as another triumphant victory (defeat) ? @Eoin, thanks It’s been suggested by observers that the €90m is 7% on the €3.1bn 2025 bond for nine months = €155m less the saving of 3.5% on the €3.1bn which we would otherwise have borrowed from the Troika (75m) = €90m. If so that wouldn’t be a real cost because we own NAMA. But we no longer own BoI, so I’m not really sure this correct so if BoI gets the bond then the increased cost is real. I understand the Leinster House lot have shuffled off for three weeks now, and there is not going to be a discussion in the Chamber. Will there be an injunction application tomorrow though? I am bored to tits with this debate – meanwhile there appears to be a wider & deeper decline the the UKs remaining rump physical economy that will have profound implications for this island. If Sterling devalues again we will have no choice but to leave the Eurozone. This Prom notes thingy is a distraction from the physical world breakdown that we are witnessing. Goverment has outsoursed economic management to finance with devastating consequences. Treausaries need to divorce themselves from their CBs and issue their own paper. Cut the bastards off from the tax spigot. @ Colm O L Re “Effectively, we have €3bn more debt than we had budgeted for…” Yes and no, NAMA is an SPV so its debt is not calculated as part of general government debt, so we get to hide the ¢3 bn as well… but even though its hidden, we know it still exists…under the NAMA carpet. @ Colm Brazel NAMA is only acting as a repo-counterparty for IBRC in the short-term. The new debt is an Irish Government bond (replacing the €3bn of Promissory Note being repaid). Ultimately Bank of Ireland will be the repo counterparty to replace NAMA but the debt is Irish Sovereign debt. As Jagdip points out above the offset is either cash retained or not drawn down from the bailout fund. @ Jagdip I think the 7% goes to IBRC. Yes IBRC uses it as collateral to borrow from NAMA/BoI put presumably at a much lesser interest rate. I think the calculation you give of the 90M is correct. It will appear as a cost in the governments finances, but essentially finishes up paying down IBRCs ELA. Seems to me that IBRC ELA is being replaced by LTRO via the REPO of a govt bond with BoI. Think I need to lie down. @ Colm O L The cash-flow saved today means we have 3.1bn less to borrow on the markets next year. So we have more debt this year, but we’ll have the exact same next year as previously assumed. Secondly, I read it, and the RTE.ie report suggests the same, that it’s a 90mm saving on the deficit, but Noonan was trying to highlight the bigger overall benefits that would accrue, so he didn’t want people going away with “big deal, it’s only 90mn”. Thirdly, and @ Jagdip, he referenced the budget deficit, so none of the ‘retained’ profits made by Anglo would be included in these sums. As I said, I believe that a 3.06bn market value bond will equate to a face value of 3.45bn (88.25 cents price), with a 6.8% yield, and a 5.4% coupon. Has Comical Mickey cost the state €90M just so FG can have a happy-clappy Ard Fheis this weekend? Hep C déjà vu. @Colm Brazel @Colm O L Re “NAMA Carpet” My instinct would be to agree with your sentiment but if I remember correctly there was an article in one of the Newspapers recently claiming that NAMA has 4 or 5BN cash. From what I understood from the newspaper article (If I remember correctly) the government was having difficulty geting to use that money for purposes such as exchequer spending, stimulus (government debt) etc. other than for specific NAMA activities. Perhaps this is an iterim way “round about way” of using the NAMA cash while the Irish Government waits for a more favourable climate in the EU which will encourage the ECB to “revisit” this whole shambles. RTE (on line) quoted some one in the Dail describing this as “trickery” in an attempt to persuade voters to vote yes in the referendum. Having read Minister Noonanś statement I am not sure it will have much effect on how people eventually vote in the referendum (my guess most people have not decided either way yet) but I do think it is an attempt to make the best out of a terrible shambles which IMHO Ireland should not be carrying alone. @ Livonian NAMA cash is only in use for a month or two, then BOI’s replaces it. Breaking Newz Unconfirmed reports, from a usually reliable source, that Patricia the Irish_Sovereign_in_Exile, having come to the realization that she will not live long enough to reside in her homeland again due to the weight of odious vichy_banking system debt, is seriously considering abdicating in favour of her daughter. to be contd. @Eoin Perplexing stuff. It has always seemed that key to any net benefit would be any change in the ultimate interest rate to the State on the ELA (or its replacement). Karl has estimated that this interest had been 1 percent (after factoring in CBI profits). I gather from what you say that BoI will charge 3.5 percent. So the cost-benefit calculation involves the benefit of a one year deferral and the higher ultimate interest rate over the year. Unless I am missing something, this does not amount to much either way. But I suppose it does buy time for a more substantive deal. Does the effect on the deficit have something to do with the interest rate holiday on the PNs from the point of the GGD — a holiday that would not apply to the new bond? @John@Eoin “Unless I am missing something, this does not amount to much either way. But I suppose it does buy time for a more substantive deal.” Yes I would also guess what this is all really about but one thing we can all be really sure about is that it is “perplexing stuff”. 🙂 Why is BoI involved in this and according to their statement getting a 1.35% profit margin on the transaction? Why can’t Anglo deal direct with the ECB? If solvency or wind-down vehicle concerns then why not use AIB instead of BoI. At least we own 99.8% of AIB so would benefit from any margin. @ Livonion, tks Re “attempt to make the best out of a terrible shambles….” I’ve yet to find one speck of evidence our shambles is not 99.9% self induced. Each time we take the horse to the boneyard, the ECB turns it into glue. Unilateral, burden sharing or doing a Rajoy is not a song sung by us craven vassal, Lord Haw, haw debt zombies. I’m thinking they’re looking at “all” the NAMA portfolio as a CDO to pay off the IBRC ¢47 bn probably waiting until we get more desperate before they start more looting and pillaging. Noonan heralding the NAMA CDO as a good deal, they’ve just managed to loot ¢3bn from NAMA for odious debt to replace the dodgy PN, more champagne for the ECB ponzi scheme 🙂 @John@Eoin Apologies I intended to write :” Yes I would also guess that this is what this all really about….” @ JR BOI will charge 2.35% And @ Jagdip, as JR notes, there was no interest on the PN this year, but there will be on the newly issued government bond, so that’s probably where the net increase in deficit comes from. 3.45bn in debt, @ 5.4% (ie 5.4/88.25) x 6 months = 90mn Sorry, that was at John McH, not JR @Jagdip I would guess that the choice of BoI over AIB has to do with ECB concerns over the whiff of monetary financing of a Government. @John, that sounds reasonable and also (thanks to Karl Whelan) pg 12 of the IBRC annual report today http://t.co/JIHMMkQV seemingly deters IBRC from increasing its lending from the ECB. But why gift €45m -1.35% x 3.1bn – to Bank of Ireland, would no other institution do it for less? @Bomd. Eoin Bond. Can you verify these numbers: The coupon on the bond = 5.4% +? “BOI will charge 2.35%” = 2.35% Total = =7.75% This for the State to fund failed dead banks. BOI and other European banks (good and bad) borrow to fund their operations at LTRO of 1%, some of this funding used to fund States, good and bad! Personal opinion. Ireland is being pi**ed on by the ECB, once again. If the above is correct, the @ Jagdip Is that a serious question? Why not just buy a 1yr Irish government bond, yielding 4%, repo at ECB at 1%, and pocket the 3% difference? Same risk. @ JR BOI charges 2.35% This reduces Anglo’s “profit” from 6.8% (yield, 5.4% coupon) to 4.45% The maths is lost on me but is the real benefit saving on cash flow in the short term; politically Rehn can say we are still paying and we buy time to get a better deal when things more stable? @Jagdip Singh Why is BoI involved in this and according to their statement getting a 1.35% profit margin on the transaction? Neoliberal idealogical purity would seem to jump out as the reason – part of the ECB’s mission is to transfer financial power from the state to the private sector so it makes complete sense that they would want the solution most favourable to the private parts of Irish financial sector and least favourable to the Irish state. The logic of allowing hundreds of billions in LTRO support to private banks involved in speculative investment while forbidding similar low interest lending to the states coping with the results of the European component of the global financial crisis should have sunk in by now. Power of Euro, Ordoliberal Purity Edict, Purity of Essence, End of Partnership. There is a danger of a little beaten spouse psychology creeping in here as we look for a reasonable justification for the ECB’s behaviour (its their mandate to punish us!). They beat us because they like beating people and it continues because they know we are afraid to leave them. Reading Karl Whelan’s tweets on this I feel that the optimism about the intentions of the European part of the Troika is evaporating, its about time. @Eoin Is that a serious question? Why not just buy a 1yr Irish government bond, yielding 4%, repo at ECB at 1%, and pocket the 3% difference? Why assume this deal which only pays 1.35% margin? @ All FYI http://uk.reuters.com/article/2012/03/29/ecb-ireland-idUKB5E7N501320120329 From bonfire of the bondholders, to bonfire of the monies to bonfire of the vanities! Karl Whelan In my last post on this issue, last Saturday [link above DO’D], I had noted that any deal that was done was just in relation to the March 31 payment and did not affect future payments. I had written: Is it likely that the ECB will agree at a later date to a more comprehensive restructuring of the promissory notes allowing for a systematic payment deferral? I would guess not. While you could argue that a deal on the current payment shows some flexibility on the part of the ECB, an alternative viewpoint is that six months of “discussions” failed to get anything other than a fairly meaningless one-off deferral. My pessimism turned out to be too optimistic. In fact, it appears that the Irish government made essentially no progress with the ECB even regarding the current payment.’ http://karlwhelan.com/blog/?p=247 No comment necessary at this stage. Text from Blind Biddy: WAR. @DOCM re ECB Statement http://uk.reuters.com/article/2012/03/29/ecb-ireland-idUKB5E7N501320120329 “The Eurosystem has provided unprecedented support for the Irish banking sector. The objective should be to reduce over time the reliance of Irish banks on central bank funding and in particular on the emergency liquidity assistance.” I find the ECB objectionable and racist. There is currently one trillion in ‘unprecedented support’ out to European banks and institutions. Almost 400 hundred of these as I understand it are in Germany. Why does the ECB single out Ireland in its ‘unprecedented support’ support statement. The best thing for Ireland to do is take over Irish Life as it is doing, then dump all European assets in the pension asset portfolios and convert to cash. Use the cash to invest in Irish bonds and tell the ECB to take a hike. The ECB is an organization that Ireland and Europe could do without. For anyone wondering about what the ECB priorities are @DOCM’s link is worth a read. They want their money and they answer only to Mammon. I do hope that the Irish government can recover enough from their Euroholic stupor to realize that negotiation may not be our best option. Its still confusing unhelped by Noonan’s announcement without detail in the Dáil. Best explan I’ve seen is: Sean Whelan economics correspondent RTE, check out RTE Player 6 or 9 pm news RTE. Basically, we don’t pay the ¢3.06, whose payment is deferred. The money that would otherwise go to pay it, instead will go to refinance money due in 2014 just after the end of current programme. That money approx 8 bn will need approx 5 bn in refinancing. The long term bond, (please add duration and interest payments for the arithmetic on interest costs not done here) is firstly taken to NAMA for cash involving temp bridging loans for few weeks (no idea why NAMA are involved). Then BOI repurchase the Bond from NAMA. NAMA only get paid for the bridging of this by BOI. BOI after settling the bridging cost of the bond with NAMA, now turn the Bond into cash and hand the cash to IBRC. IBRC will collect an annual interest rate payment, the state gets back to itself. There is absence of detail above on the interest payment side but my understanding is the costs are marginal. Don’t see why there is a bridging aspect to the above? Feel free to elaborate more on the above. Basically PN gets amortized into a long term bond and ECB get sounder money. Still unclear on certain details so looking forward to seeing more detail on above. BOI as I understand it have access to LTRO at 1% which is another aspect of this could be questioned? Having watched the RTE show with Minister Noonan, I admit to experience a burning temptation to comment on his body language and facial expressions in great detail, but in Ireland 2012 the blasphemy law or defamation act of 2009 carrying a 25,000 Euro maximum fine stopped in my tracks. Would you ever have thought that PapaRatzi would convert to Islam? Exactly, it is not going to happen as long as there are expensive enough drugs available to fight his shoulder arthrosis just enough so he can still wave his paypal Greetings…I mean papal Greetings from the balcony to the bondholders… I mean his sheep. What the Pope and Noonan have in common you may ask? It is not the shoulder arthrosis, that much I can promise you. Come on, this is hardly complicated. The state has a certain amount of cash in hand or available from the troika. Instead of putting down €3.1bn of that available cash it has opted for a 1 year deferral by way of a government bond. If, come the due date, that bond can be rolled over, then the cash-eating PN has been turned into standard public debt – while whether it is or not, the state has deferred a cash payment in favour of, essentially, a new IOU to meet a due IOU. Have none of you ever been up to your oxters in debt? The golden rule of juggling debt is “hang on to the cash”. Minister Noonan says its like Limerick beating Tipperary! Clearly the Minister is still confused about 1971 and he still doesn’t know where the dry ball came from. The ECB, like Tipperary in 1971, bend the rules to suit themselves. @Joseph r “Why does the ECB single out Ireland in its ‘unprecedented support’ support statement.” I’ve tried to get across on here several times just how much of a big deal (viewed not from Dublin, but from Frankfurt) allowing the Irish to PRINT on the basis of an asset whistled up out of thin air to finance spending by an EZ state, a total of over €30bn – and how determined the ECB would be that the agreement to ‘un-print’ it would be honoured. Now we all know the spending in question was not exactly classic, profligate state spending, and has actually benefited up other countries banks along with creditors in Ireland. We also know that there are suspiciously unsubstantiated claims the state was ‘ordered’ to do so. But there really shouldn’t be surprise that the ECB and others are doing what it was possible to work out from the day the first promissory note was ‘issued’, they were most likely to do. They have effectively rolled-over part of the ‘debt’ which gives the state a funding profile gain. It is small, but not zero. The thing with all these megabucks wheezes is to think them through beforehand. There is a reason why Ireland cannot negotiate effectively with its European ‘partners’, it can be read like a book and is a classic ‘price-taker’,but we have discussed that before and that isn’t a popular message either. It would have been far easier to recruit international support for resolving (however ad hoc and improvised) Anglo etc and applying capitalism to creditors, than to recruit support in the international financial community for the right of a state to finance spending through printing an international currency. @DOCM That ECB statement looks terse. They merely “note” what Mickey Noonan said and they expect all future payments to be made on schedule as The government has committed to. No leeway there. The overall importance of the announcement resonates with me as strong as the new back in 2006 when the Tennis legend Martina Navratilova actively engaged to defend the right of sheep to be gay. Considerable amounts of taxpayers money was spent on research of gay sheep in the US at the turn of the millennium and to Martina’s dismay researchers at the Oregon State now claimed to have discovered a cure for gay sheep. My world had changed forever. Still trying to get my head around it. I think it is useful to stand back and think about what was hoped — or at least I hoped — would happen. Just looking at this year’s PN payment, the simplest case is that it would have been deferred for a significant period of time and relatedly the ELA to IBRC extended. This would have been welcome on two fronts: (i) it would have improved the State’s funding profile; and (ii) the ultimate cost of the ELA to the State is low (Karl Whelan has estimated that it is 1 percent after factoring in CBI profits). It always seemed a stretch that the ECB would agree to something like this, but hopes were raised. As best I can understand it, the current deal only defers the cash call for one year. Since we are funded until the end of 2013, this does not seem to help the funding profile much. Relative to status quo of making the payment on the PN, the Government could build up cash balances for a year (earning some low rate of return) or delay drawdowns from the bailout fund (saving on interest costs). On the cost side, the interest rate cost is the 2.35 percent that will be paid to BoI, which is higer than the ultimate interest rate cost on the ELA that will be paid down. So compared to the simple scenario hoped for above, the announcement today strikes me as something of a disappointment. Of course, we can still hope that it is only an interim measure and negotiations will continue. But it also seems the ECB is taking quite a hard line on extending ELA beyond what was agreed with the PN repayment schedule. @ Jagdip With repo you won’t have any Mtm risk that you would with an outright bond, but my point is simply this – do you reckon there’s many banks out there willing to take on 3bn+ in Irish government risk for 40mio profit? Only an Irish bank could do this, and only a private bank would be acceptable to the ECB. The fee is pretty reasonable all things considered. Is it likely that BOI as a private bank (yes) is tapping the LTRO to buy this bond in a bit of circular dealing? @John McHale The Minister thinks its all very complex…. “The Finance Minister described the negotiations with the European Commission and European Central Bank as very complex, but insisted a long-term Government bond would ensure repaying Anglo’s debts will become more manageable and ensure financial stability. “If you bought a house on a five-year term and you pay big annual instalments over five years, you pay less over all than you would over 25 years,” Mr Noonan went on. “But the annual payments would be so large and burdensome that they would weigh you down.” Mr Noonan explained that the Government will present the bond to the IBRC, which will then hand it to the Bank of Ireland which will then turn the bond into cash, which it will get from the European Central Bank at a rate of 1pc, Mr Noonan said. The cash will then be given to the IBRC, which then hands the money to the Irish Central Bank. It will then notify Frankfurt that the debt has been paid. “There is a lot of complexities in this promissory note issue. It’s a very complex arrangement in the first instance so it needed complex financial engineering to make sure it can be paid in this way,” he added.” But it’s not. We issued simple IOUs to fund an insolvent bank with a repayment schedule for those instruments. Now we want to swap the first instrument for a long term government bond but as that involves breaches of treaties ( which you alluded to above). The complexities arise from trying to camouflage the fact that it is monetary financing of a government. Look at the statement from the ECB..they are not happy campers. http://uk.reuters.com/article/2012/03/29/ecb-ireland-idUKB5E7N501320120329 That ECB Statement is one of the more disheartening external reads I have seen for quite a while. “We certainly expect that also in the future the promissory notes will be served according to the schedule to which the government has committed itself. ” Honestly, we are all expecting this 3.06bn delay to lead to something more substantial over the course of the next year whereas the ECB seem to be implying we should revert to paying cash next year. Does no one around here have that funny feeling in his stomach about the BOI and NAMA involvement at all, or was it the allegedly brilliant and outstanding value of Super Values less than fucking moderate 2009 Saint Chinian causing the noise in my peristaltic? Aww Rob S… really it is the same as Noonan announcing Ireland to go back to the markets in 2013… soundbites… throw some shit against the wall and see what sticks… that’s politics today! @ ceteris The complexities arise from trying to camouflage the fact that it is monetary financing of a government. Yeah! @Livonian “However I am slightly confused about the GDP/deficit calculation: According to Minister Noonan : (Quote)”The State still has a very sizable exchequer deficit of 15.8BN euro over public spending over revenue.”(End quote) So if the 3.06BN is part of the IBRC/Promissory note saga (which was accounted for in the massive budget deficit of 2010) then the “general” budget deficit for 2012 should be around 12.7BN.” Sorry if I misunderstand you but the GGB remains at 15bn this year regardless of whether or not we pay the 3.1bn. Its only the Exchequer deficit that is affected. It’s a silly flourish which they will they are trotting out as a major negotiation success.. It just fairground trickster thimblerig nonsense designed to pull the wool over our eyes. @ John McHale “As best I can understand it, the current deal only defers the cash call for one year.” If your understanding is correct, would it mean that €6.2 bn will be due to be taken out of the economy next year? @ Amac It just fairground trickster thimblerig nonsense designed to pull the wool over our eyes. That’s what I meant to say, but lacked the words! Not to the blog owner: It is 0:11 AM not 11:11 PM Brilliantly funny Vincent Browne programme this evening, Wilbur Ross will be watching a tape of it – in which a government spokesman you wouldn’t buy a used horse from states that as far as the Irish government are concerned once BOI have the bond they can forget about asking for their money back untill the bond matures in 2025 – if they want it before that “they can go off and sell it or something” [not verbatim]. How many expletives do you think Wilbur will use, and how grovelling an assurance do you think he will get – and will it be from Micheal Noonan or Enda Kenny? Wimpy Noonan: http://www.japlandic.com/2012/03/wimpy-noonan.html http://i828.photobucket.com/albums/zz209/What_Goes_Up_/Japlandic/WimpyNoonan.jpg The Irish “can kicking” chapter is swiftly coming to the end of the road. “Growth” never showed up to save the day and a new bail-out is not in the immediate cards. The next chapter will be dominated by a “fire sale” of assets. NAMA is being raided and will need to raise replacement cash, and fast. Non NAMA assets will also go on the block. Call in the auctioneers. The vulture funds (including Wilbur) are patiently waiting in the wings for the right deals — they are about to arrive. @Georg R Baumann “The overall importance of the announcement resonates with me as strong as the new back in 2006 when the Tennis legend Martina Navratilova actively engaged to defend the right of sheep to be gay. ” The slight difference is that your story is far more interesting. So, if this ‘announcement’ were a Sun headline, what would it say? Any takers? From the statement: “This will have an approximate €90m impact on the general government deficit in 2012 which is small relative to the overall benefit of the removal of the requirement for the Exchequer to settle €3.06 billion in cash.” This has caused some discussion above. I think it’s got to the point where the attempt to euphemise is needlessly confusing – ‘adjustment’ is always bad for eample, though it an be read either way. In this case I think the ‘impact’ is negative. It is a cost. I note that RTE and Irish Times report this cagily as if they’re not too sure either. I think if it were a saving it would be named and claimed as an achievement, ie “The Government has achieved a net saving of…” Would I be right there PR Guy? @ John McHale “Of course, we can still hope that it is only an interim measure and negotiations will continue. But it also seems the ECB is taking quite a hard line on extending ELA beyond what was agreed with the PN repayment schedule.” That is the point alright. When M Noonan made the surprise announcement, last Wednesday, 21st, of progress, it was assumed a bit that he must have got permission to announce the closeness of a deal. Otherwise he was going right out on a limb. I wonder who exactly gave him he nod to go public, what he thought at that time was on the table, and what, if anything, changed after that. @ Gavin it is a cost as far as i can tell, but there always would have been a cost to this years deficit – the promissory notes are non-interest paying in 2012 (interest holiday), an outright bond will pay a coupon. That none of us factored this in beforehand does make this a “bad” element of the deal. From the ECB’s perspective there is no change to the March 31 payment, or any future ELA payment (unless all PNs are redeemed in a complete switch of financing away from the ECB to the EFSF). They are nothing if not consistent. The ECB statement had a very pacta sunt servanda tone to it. As I understand it the March 31 payment will be made with NAMA cash. The newly printed government bond will be given to IBRC for no consideration and IBRC will repo this with NAMA, and IBRC will use the cash to pay back the ELA on March 31. The IBRC will then undo this transaction and repo the bond with BOI, who will in turn repo it with the ECB. The ECB cash will flow back to NAMA who are then out of the picture. In a year’s time IBRC will undo the repo with BOI, with cash supplied by the government. There is no change at all with respect to the ECB’s inflows/outflows with IBRC. The ECB see a new 1 yr repo transaction with BOI, with an Irish government bond as collateral – this is no different from seeing a new repo transaction with an Italian bank using an Italian gov bond as collateral, for example. The topic is well covered in Can we make Irish promissory notes a bit more bonkers? Yes we can Can anyone explain to me who exactly Noonan has reached a deal with? I’m tearing my hair out this morning reading the papers as I don’t see any actual deal mentioned in his speech/release above and the ECB has only noted our plan. As far as I can tell we are paying back the ECB on time without any kind of a deal and the only new information is that the state is also raising 3bn from the private sector/BoI (which the state is entitled to to) and BoI may or may not park for cash in the ECB (but probably will as it’s the cheapest form of financing) along with billions of other government debt as part of it’s normal course of business. So where’s the beef? The ECB won hands down. The logic and reality for the ECB is that Ireland WILL pay in FULL PLUS INTEREST for the liabilities bust banks. In that case Ireland should require that all pension fund and other assets abroad be repatriated to shore up the financial institutions. Neither proposition is either fair or equitable but having been forced to pay all private bank liabilities, no matter where situated, Ireland should legislate that all financial assets, no matter where situated, be repatriated. @Edward v2.0 The deal is really with BOI and NAMA. As the FT Alphaville article I linked to points out, it isn’t technically a deal with the ECB at all. @grumpy It would have been far easier to recruit international support for resolving (however ad hoc and improvised) Anglo etc and applying capitalism to creditors, than to recruit support in the international financial community for the right of a state to finance spending through printing an international currency. +1. The banking tragedy in a nutshell. @Grumpy… I’ve tried to get across on here several times just how much of a big deal (viewed not from Dublin, but from Frankfurt) allowing the Irish to PRINT on the basis of an asset whistled up out of thin air to finance spending by an EZ state, a total of over €30bn – and how determined the ECB would be that the agreement to ‘un-print’ it would be honoured. +1 @Brian G The deal is really with BOI and NAMA. As the FT Alphaville article I linked to points out, it isn’t technically a deal with the ECB at all. +1. @ Bryan G I suspected he’s been bargaining with himself. Unfortunately there are two stages of grief left after bargaining, the next one being depression… @ All On the stages of grief, we may be approaching the that of acceptance. The error of appreciation that has dogged this saga from the very beginning, it seems to me, was to seek from the ECB a concession that it could not give i.e. any suggestion that ELA was anything other than temporary and to be viewed solely in a monetary policy context. cf. refusal by Bundesbank to accept bonds of Greece, Portugal and Ireland. http://www.faz.net/aktuell/wirtschaft/schuldenkrise-bundesbank-weist-marode-bankenanleihen-zurueck-11702028.html It’s cold out there! Since it is pretty clear the ECB are not going to budge an inch, the focus may turn to a deal with the EFSF whereby the government take out a long-term loan with the EFSF and use the proceeds to pay off the PNs/ELA in one go. A while back there was an NTMA letter that outlined one such possible restructuring. I don’t know if there are more up to date letters or documents on this topic, but it can be viewed as a starting point. @PR Guy So, if this ‘announcement’ were a Sun headline, what would it say? Any takers? I would love to see: Taking The Alphabet Soup: ECB: NEIN! CBI-IBRC-NAMA-BOI:WTF? But it would probably be: Tricky Mickey Bonds! Ooops, re my comment above this morning – shoudl read “doesn’t make this a bad element of the deal” @ All The bonds in question are those of banks guaranteed by the three countries. Brian G How does BOI fund the transaction, assuming its shareholders agree? Two things: (1) 3Bn of “liquidity” is going to disappear from the Irish financial system on Mar 31. It may be interesting to financial anoraks, but it is a second-order issue whether this is intermediated through BoI, NAMA, Troika credit facility etc. Cash disappears in full, and on time. (2) this non-deal illustrates once again that Irish negotiators fail to understand Draghi & the ECB. We need to look seriously at how these negotiations are approached in future. @DOCM On the stages of grief, we may be approaching the that of acceptance. The five stages of the Eurozone Financial Capitalists grief over the murder of the Irish Economy in order to protect the banking sector. Nervous Complicity — Active Conspiracy — Diversion — Barely Disguised Joy — Public Gloating Remember that part of the job of the Europe Firster is to make defiance of the current Eurozone regime seem impossible but you must not let the bankers get you down – resistance to this hopefully temporary regression in European Civilization is vital. Its a disgrace Primetime or some other RTE or media vehicle or a major Q/A in the newspapers this weekend? have not teased out the questions most people above still have re the ‘deal’. @Colm O’Laighin Says: March 29th, 2012 at 5:57 pm Re “NAMA is only acting as a repo-counterparty for IBRC in the short-term. The new debt is an Irish Government bond (replacing the €3bn of Promissory Note being repaid). Ultimately Bank of Ireland will be the repo counterparty to replace NAMA but the debt is Irish Sovereign debt.” The question is why NAMA in the first place? I suggest the reason is NAMA is an SPV so its debt doesn’t have to be announced as part of general govt debt ! But I welcome any information that is counter to this view. So, the bridging loan is cloaked as part of Irish Sovereign debt by sending it into NAMA. BOI then comes into the picture in an arrangement that transfers the Bridging loan onto its books at a 2.25% coupon. IF BOI is using a LTRO facility to pony up the ¢3.06 bn from ECB at 1%, it has a profit of ¢37500000 less charges to NAMA for the bridging facility. Overall, the State pays a premium for turning the paper into this commercial paper. That would have to be compared to the interest calculated against the PN but overall I’m guessing there is no advantage there for the State; BOI benefits though plus the ECB gets real commercial paper. As usual, Bankers 1; State 0 Re Noonan/Howlin LB/FG/FF overall strategy to defer payments into the future rather than writedown, burden sharing, it would appear the ECB are having none of it. Re Noonan “ECB hasn’t closed the door to a reengineering of Irish bank debt” Why would they, given the above outstanding deal 🙂 I suggest as part of the strategy for Ireland deferring rather than writing down through burden sharing its debt, that Noonan be asked to travel to 2025 in his Time capsule and speak to LB/FG/FF Ard Fheis, say 2025, to illicit support for the view they should pay his Govt’s debt and not anyone else. May I humbly suggest LB/FG/FF strategy on deferment, long term bond issues to pay odious debt, is an insult to the term, debt sustainability. Markets know this:-) But the message hasn’t gotten through to socialism for the banks and the ECB. One final point, judging by the evidence of the Compact Trojan Horse, the ECB may only accept its pound of flesh in the form of the dismantling of Irish sovereignty. @tullmacadoo I don’t believe BOI need to act as a source of funds, instead they only act as a middleman. My understanding is that IBRC will repo the new bond with BOI, who will repo it with the ECB, and BOI will then pass the cash back to IBRC (who will give it to NAMA). A year later the repos are unwound – the government supplies 3.1bn to IBRC, who use it to unwind the repo with BOI, and BOI use that cash to unwind their repo with the ECB. In a nutshell – there has been no ‘deal’, no ‘deferment’, and certainly no improvement in the round, in fact there has been a net cost of €90m. So much for the ho ha over the household charge when Noonan can piss away 56% of the expected €160m to once again lie to the citizens that after tortuous ‘negotiations’ bugger all has in fact been gained, in fact more cash lost. Next year €6.2bn will need to be found as KW correctly noted last night the BOI loan is a 1 year loan and they will rightly look for the cash back in addition to next years €3.1bn PN due. Bottom line – this is another disaster – we negotiated with ourselves for 6 months and lost €90m in the process ! With such finely tuned business brains leading the charge is it any wonder that normal folk wouldn’t give this morons the steam of their collective piss let alone the €100 due tomorrow. Folks we need to wise up – paying for a dead institution is stupidity at an all time high – tell the ECB to take a hike and if they say no then we leave the zone and bring the whole house of cards down – which is it to be Mr Draghi? Please end this nonsense. Its pretty simple we can’t afford to pay this cash and someone somewhere has to take a loss which thus far nobody is willing or allowed to do. If the ECB isn’t willing and the bond holders and depositors have all being paid and the citizens of Ireland Inc can’t afford it – as evidenced by yesterdays nonsense- then the pain is passed onto the rest of Eurozone citizens or the ECB prints the cash and hopes against hope that the inflation genie is watching the European Championships and then the Olympics and doesn’t want to come out to play. Or am I missing something? @Yield “Bottom line – this is another disaster – we negotiated with ourselves for 6 months and lost €90m in the process…” +1 But ‘Limerick beat Tipperary’ according to the Minister. What scoreboard is he looking at I wonder? @ YoB “in fact there has been a net cost of €90m” this is money which goes to IBRC, which we own, so it is not being “p1ssed away”. The real net cost is really 85% (ie the private sector equity holding) of the 1.35% margin that BKIR is charging. So 35mn. @Yields or Bust So much for the ho ha over the household charge when Noonan can piss away 56% of the expected €160m to once again lie to the citizens that after tortuous ‘negotiations’ bugger all has in fact been gained, in fact more cash lost. This is the new EU @YoB and you can expect the costs of a dysfunctional EMU and the Financial Systems misallocation of resources to be passed on to the citizen until either the current stranglehold of the creditor nations/ECB is broken or we leave the Eurozone. Serious point for a moment: In a Europe where economic policy making is no longer made in any meaningful way with reference to the needs of countries not bordering Germany it does not help that we have no stated policy options other than doing what best suits these countries. Parties supposedly representing 60% of the Irish electorate (FF, FG and Labour) have proudly proclaimed that they stand for doing what they are told – in those circumstances we can hardly expect parties as coldly self interested as the ECB and Merkelists to do anything except extract the most advantage they can from our current weakness. The government needs to start thinking about a plan B in public, how we try and isolate the portion of sovereign debt due to the financial sector bailout from the debt due to our budgeting to make it easier to restructure/default if necessary and on and a way to calm our FDi sector that their cash is safe. (perhaps IBRC could be that vehicle?). Not only may it not be possible to maintain the appearance of partnership in Europe any more but maintaining the pretence could impoverish us for decades. @BEB Ok its actually 64% of the collected Household charge as of last night i.e. 35m/55m 55m being 550,000@ €100. I’m still at a loss how anyone can suggest this was a successful day at the office. Its a disaster we’ve just lost another €35m and now have a €6.1bn call next year – why can Noonan et al be suggesting that this is some sort of win- its more akin to Kilkenny beating Kerry in football. Unthinkable really, but the ordinary folk are so badly informed through RTE and the media generally that the Govt has the neck to believe it has just landed another winner and the goshites will suck it up. What’s worse is that they seem to be getting away with it. Last nights attempt by RTEs economics correspondent to explain this charade was a joke. @ YoB “I’m still at a loss how anyone can suggest this was a successful day at the office.” i suppose it depends on what exactly you were expecting or hoping for yesterday? If you were expecting a debt writedown, then you were disappointed, but not particularly serious, in my view, it was never gonna happen. If you expected a debt extension, then we did get one, although not via the method we had assumed beforehand, with question marks over what happens next year when the BOI transaction matures. Do we get a “grand” plan in between? Thats clearly what the ECB is hoping for. So is this deal perfect? God no. Unnecessarily complex and with uncertainty about what happens in a years time. But obviously we have all underestimated just how keen the ECB is to reduce exposure to ELA and to failed banks via liquidity provisions. But the deal in and of itself is cashflow positive, but needs a long term funding solution put in place against it. Brian G so it is a 1 year loan from the ECB to BOI to the IBRC to repay the CB. Eliminating all the bits in between the ECB is lending money to the Irish CB? @ Tull circular Irish transaction, love ’em… @Bond “If you expected a debt extension, then we did get one,” No we didn’t. No “debt extension” or restructuring is taking place whatsoever. Effectively NAMA is making the PN payment from it’s cash reserves. @ DOCM Puzzled again. Could you square: “The PNs represented a debt which I have maintained from the outset that we must pay but the terms should be altered (which should include some element of concessionary treatment by – now largely – official creditors).” with “The error of appreciation that has dogged this saga from the very beginning, it seems to me, was to seek from the ECB a concession that it could not give i.e. any suggestion that ELA was anything other than temporary and to be viewed solely in a monetary policy context.” http://www.irisheconomy.ie/index.php/2012/03/22/ireland%E2%80%99s-debt-burden-the-many-stages-of-grief/ @gavin I would assume he is singling out the ECB as being the ‘official creditor’ not to single out in order to seek said concessionary… etc. @ BG in a few weeks time, what will the cash positions of IBRC, the Irish exchequer, and NAMA look like? Pretty much the same as today? @ grumpy Sorry, bear with me here, but the only official creditor involved with the PNs is the Irish Central Bank? Right? Which is part of the eurosystem and therefore needs two-thirds (in effect consensus), from the Board of the ECB. @Eoin – you mentioned that the PN wan non-interest bearing in 2012 and that is where the additional deficit of €90m was coming from. However, that isn’t really the case. The €3b of PN was due to be paid down tomorrow (from funds already drawn down from the Troika presumably). Hence it would have been extinguished and no costs were budgeted for that tranche through the rest of the year. Instead, the Government has elected to borrow an additional €3bn for the remainder of the 2012 fiscal year – that is where the additional costs are coming from (less some assumption of what can be earned from the €3bn cash that can be re-invested elsewhere). The non-interst bearing nature of the PN is not relevant here. You are correct that the interest paid to the IBRC is effectively paid to ourselves but that doesn’t impact Government accounts (and we won’t see it anytime soon until Anglos other creditors are paid). @ Colm Noonan said this would impact the budget to the tune of 90mn. People are asking “why”, as there had been an assumption this would in fact reduce the deficit, if anything, due to the lower coupons on whatever replaced the PN. The reason why it wont reduce the deficit for this year, and this year only, is because no interest costs at all were budgeted for in 2012 for the PN. We will now have a coupon bearing, interest charging bond, which will hit the deficit. Therefore, given that we are replacing an interest bearing liability for a non-interest bearing liability, the non-interest bearing nature of the PN is relevant. @ Colm shorter version – lots of people forgot the PN’s are not interest bearing this year @Eoin We paid every penny that was due on the PN – it has not been replaced, it has matured in full. The 2025 Bond is new debt that was not budgeted for. @Bond “in a few weeks time, what will the cash positions of IBRC, the Irish exchequer, and NAMA look like? Pretty much the same as today?” Huh? NAMA will be -3Bn. @ BG …after BOI step into the transaction? @gavin I am guessing the other official creditors he mentioned were the likes of EFSF & Esm, the idea being they might re-finance the PNs. @grumpy I am guessing the other official creditors he mentioned were the likes of EFSF & Esm, the idea being they might re-finance the PNs. The man himself remains curiously silent though. Some people have no guiding principles or explanatory narrative, just an agenda that they will justify as plausibly as they can. As with Enda and Denis O’Brien it may be a mistake to get too close. No need to mention the bond holder bailout. Part of our Eurozone responsibilities in almost precisely the way that social and economic justice is not. @ Joseph Ryan More like Monaleen beat Adare @ Bundesboy “It’s not coincidental, that Mario Draghi has rejected or slapped down Enda’s nominated gladiator by refusing to even bother to put the PN topic on the ECB agenda. Draghi wants to keep the expansion of the money supply as a function of the ECB and not cede it to wide boys at the DoF who told the late Brian Lenihan about those Leaving Certificate promissory notes and bills of exchange he had forgotten about. It appears many people in Europe, notice the extraordinary salaries still being paid out by a “bust” country, they see the CP gold plated life raft floating serenely by in the middle of an EU existential crisis and they cannot help but scratch their heads as on the side of the vessel they see the name “Bailout 1″. Then they look at the overgenerous welfare state in Ireland and give another scratch! The only cogent argument I hear for the FC is; where is the money going to come from in Q3 of 2013 to continue to finance CP and welfare. Also, maybe Joseph Ryan’s points at 2 and 3 above. Sad though that we end up voting for austerity in perpetuity because of that.” Dublin should forget it’s pretensions to be a centre for Islamic finance. It is already the world leader in Jesuitical finance. @ Gavin Kostick Delighted to oblige! There is no contradiction between the two statements if you accept my view that Irish negotiators – urged on by quite a few commentators who should know better – have been attacking the wrong target; the ECB. It is the wrong target because what was being sought of it was simply not within its gift i.e. varying the terms under which the PNs had been used to backstop the ELA. It could not do so without compromising an essential plank in its approach to the use of ELA. What could be attempted – and I concede that my language was imprecise – was the negotiation of an alternative set of terms – with the other countries of the EA – which would involve clearing the ELA. Now that this penny finally seems to have dropped, with some face-saving all round, this avenue seems to be, finally, the one which the government is exploring. If there are to be concessions, other countries will have to fund them. the quid pro quo must be that the Irish government stick to its last. It has shown a remarkable capacity to strengthen belief in its capacity to do so one day and undermine it the next, largely because some members of the government are trying to play to two audiences; popular national opinion and the international markets. It was ever thus! But, as John McHale has shown on a number of occasions, it is open to question whether the game – of renegotiation – is really worth the candle. @tullmacadoo Yes the money flows from the ECB to the CBI. The crisp freshly printed Euros from Frankfurt will end up being burned in a basement in Dame St (ignoring NAMA). Of course printing money for government financing is a bad thing, a terrible thing, an abomination. However if a private bank is used as a conduit (making a nice profit along the way) then it is a good thing, in fact a great thing, to be encouraged and applauded. So if you say the ECB is lending to the state, you may end up getting arrested for libel and defaming the ECB. However if you say the ECB is lending to a private bank, which just happens to make a sensible investment by lending the money to the state, then you are a great citizen, and can take pride in the fact that you have a wonderful central bank. ‘Tis mad Ted. @ Gavin Kostick FYI http://www.irishtimes.com/newspaper/world/2012/0331/1224314163641.html I have tried to wrap my brain around whelans excellent paper. Could we have a comment from him. What will the ibRC bal sheet look like over the next 18months after the effects of the new bond? WHAT INTEREST PAYMENTS WILL THE IBRC BE PAYING .? WHAT RECEIVING? @Colm McCarthy ‘The deferral of the cash payment on the IBRC promissory note that was due yesterday is unimportant. In reality, the payment has been financed for only a year, through borrowing from the Bank of Ireland against a longer-term bond. There has been no change to the level of debt outstanding. Nor is there any recognition that a substantial portion arises because of the imposition on Ireland by the ECB of full repayment to unguaranteed bondholders in Anglo and other bust and defunct banks. This deal does not open any obvious corridor to further negotiations. The Government needs to prosecute vigorously with Europe the case that debts the ECB has imposed on Ireland not merely inhibit Ireland’s ability to deliver on the programme and re-enter the bond market, but are also an arbitrary and unprecedented imposition on a country that is already unable to finance itself. The loss of investor confidence in European sovereign debt has been exacerbated by the ECB’s insistence that bank bondholders come first and that the resolution of failed banks must be at the expense solely of taxpayers and sovereign bondholders.’ “NO” to this odious dictatorship. Comments are closed.