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.