Updated 11:40 am, September 17, 2012
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By Paul Cunningham, Europe Correspondent, in Nicosia
It now appears inevitable that the Government will reach a deal with the European Central Bank on lowering the cost to the taxpayer of the highly-expensive Anglo Irish Bank promissory note scheme.
ECB Executive Board member Jorg Asmussen has spoken publicly about how its officials are working under “heavy time pressure” to finalise an agreement.
Minister for Finance Michael Noonan told journalists in Nicosia that the ECB was “more eager now to move forward” and reach finality on the matter.
He said: “There seems to be willingness more than there was at the central bank to engage with us.”
The big question, of course, is this: how good of a deal is it going to be? In all probability, we won’t know the answer until a deal has been struck. So how will that happen?
According to Mr Noonan, negotiations between Government negotiators and ECB officials are due to intensify over the coming weeks.
He said “it would suit, of course” if agreement could be secured before the Budget. Given the tough medicine that is going to be doled out in December, it would be of some benefit to the Government if it could prove to the hard-pressed taxpayer that Ireland’s banking debt was being reduced. If that doesn’t happen by December – so be it.
Mr Noonan told reporters in Nicosia: “The quality of the deal is more important than the timeline on the promissory note.” That said, the real deadline, from the Government’s perspective at least, is March 2013. It’s then that â‚¬3.1bn has to be paid out to cover another piece of the Anglo Irish debt debacle.
The promissory deal is complicated. Put simply, the Government provided Anglo and Irish Nationwide with IOUs in order to meet liabilities of some â‚¬31bn. Those notes allowed the banks to secure Emergency Liquidity Assistance (ELAs) from the Central Bank because they didnâ€™t have the required collateral to access cheap financing directly from the ECB.
As such, the Government still has an obligation to “pay back” that cash for the renamed IBRC (Irish Bank Resolution Corporation). Next March, the Government is expected to pay out â‚¬3.1bn and continue to do to so year-after-year.
The high interest rate on these payments means that the total cost to the State is estimated to be â‚¬47bn. The Government’s aim is to secure a longer repayment schedule at a lower interest rate. Any change to the scheme requires ECB agreement. Securing such agreement is what Irish negotiators are trying to achieve.
Given that these discussions are highly sensitive and conducted behind closed doors, we will probably have to wait until the next meeting of the Governing Council of the ECB before we learn something new. That meeting will take place in the Slovenian capital, Ljubljana, on 4 October.
It’s customary for the ECB President Mario Draghi to give a news conference after these meetings and he will undoubtedly be asked about the negotiations on Anglo-Irish promissory notes.
Just a few days later, on 8 October, EU Finance Ministers will meet in Luxembourg. Mr Draghi usually attends these meetings too. The main focus of ministers on that day will on Spain.
An assessment of the solvency of Spanish banks is due to be finalised by the end of September. The Spanish government is also due to lay out an economic programme which, it hopes, will prove it does not need any further financial assistance from the EU.
However, it will also be another opportunity to find out how the Irish talks are progressing. EU Commission Vice-President Olli Rehn had suggested that October was the target date for cutting a deal on Irish debt.
However, that deadline appeared to slip in Nicosia. Mr Rehn suggested that his priority was to conclude a deal that was good for Ireland and the EU, rather than sticking to a date for the conclusion of talks.
On 18 October, EU leaders will return to Brussels for their autumn summit. Back in June, they decided that finance ministers should be empowered to put Ireland’s debt on a more sustainable footing. It would be expected, therefore, that they would get an update on how talks are progressing.
Once again, questions will be put to Taoiseach Enda Kenny and other EU leaders on the subject. By then, we should have a clearer picture of how things stand. However, as Minister Noonan warned in Nicosia, difficulties remain in the negotiations and so nothing is guaranteed.
Irrespective of how the negotiations turn out, the cold fact remains – we, the Irish people, are going to have to pay back every cent of the â‚¬31bn pumped into Anglo Irish Bank.