Updated 4:24 pm, December 12, 2012
October 29, 2012 by SeĂˇn Whelan
By Economics Correspondent SeĂˇn Whelan @seanwhelanRTE
Wolfgang SchĂ¤ubleâ€™s visit to Dublin was designed to avoid causing another fit of the vapours among hypersensitive commentators on Ireland’s debt problems.Â He largely succeeded in that objective by sticking to the script written the week previously by Chancellor Angela Merkel and Taoiseach Enda Kenny, the one that described Ireland as a special case.
As far as Mr SchĂ¤uble was concerned, the â€śspecial caseâ€ť would be treated as such when euro zone finance ministers come to look at using the ESM to deal with the problems of the European Banking sector – which they â€śmayâ€ť do, following the decision of the European Council in October. This incorporated the decision ofÂ euro zone heads of government to do the same at their summit in June (the one that decided Ireland was a â€śspecialâ€ť case).
But he did bring some clarity to what is still a murky business, in his references to short term and medium term debt issues facing Ireland because the country bailed out the banks.
The short term issue is the Promissory Note arrangement with the Irish Central Bank that is used to cover the losses atÂ Anglo Irish Bank and Irish Nationwide Building Society. Michael Noonan mentioned it as a pressing matter at the news conference at Farmleigh, as he has to come up with â‚¬3 billion in cash by March 31 to settle next year’s instalment – or come up with another creativeÂ loan arrangement with NAMA.
Mr SchĂ¤uble refused to comment on the Promissory note issue, saying it was purely between Ireland and the ECB to sort out, and that other finance ministers should say nothing, especially if it put the ECBâ€™s independence in question.
But then he said there was a medium term issue.Â This was the other half of Ireland’s bank debt – the half that was used to recapitalise the so called pillar banks – AIB, PTSB and Bank of Ireland.
This issue was to be dealt with in accordance with the conclusions of the October EU summit – in other words after 1) A legal framework for the establishment of a European Banking Supervisor is put in place (target date January 1) and 2) the details of how such a supervisor will work are put in place and the staff needed are hired .Â That could take until 2014, according to Mr SchĂ¤uble (citing ECB boss Mario Draghi).Â Michael Noonan thinks it could be sorted out by the second half of 2013.
Either way it looks like the issue of doing a deal on that portion of the Irish sovereign debt that relates to bailing out the banks is now parked until the back end of next year at the earliest (which is also after the German Federal election).Â Mr SchĂ¤uble didnâ€™t say a deal would be done. Nor did he say there would be no deal on what we call the Irish bank debt.Â He just repeated the agreed line – Ireland is a special case.
In between now and 2014 a lot of things have to happen at EU and euro zone level, and discussing them will have taken up a good chunk of the time in the Farmleigh meeting.Â After all, the Irish presidency of the EU will have to make progress on the Bank Regulator dossiers.
It may also have to try and cut a deal on the EUâ€™s multi-year budget, if talks break down in November.Â And then there is the lengthening queue of countries in need of an EU bailout, and the ongoing problems of Europeâ€™s banking industry (the worldâ€™s biggest, lest we forget the damage another bank crisis could do)
To keep bond markets happy, the EU has to deliver on a legal framework for a banking supervisor by January.Â Thatâ€™s a big ask in a short timeframe.
In the meantime, the best the Government can hope for to keep the Irish taxpayers happy is a reworking of the Anglo Promissory note from a ten year principal plus interest loan, into a 40 year interest only mortgage.Â It wonâ€™t reduce the debt, but it will make the Government’s cashflow a lot better.
That is the short term issue identified by Mr SchĂ¤uble, and it’s where the Government must now concentrate its efforts.
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