The Irish Government's long campaign for a new deal to settle the debts of Anglo Irish Bank and Irish Nationwide Building Society is coming to a head.
The question centres on a grinding scheme, through which Anglo and the INBS are being propped up by taxpayers with onerous IOUs called promissory notes. As it stands, Ireland must pay €3.06 billion per year to meet the €30.6 billion cost of rescuing the two bust lenders. When interest fees are taken into account, the total cost would rise to €47.4 billion by 2031.
The engagement intensified a week ago when an Irish proposal to replace the promissory note with a long-term Government bond went before the governing council of the ECB, its ever-cautious decision-making body.
An appreciable deal could make the difference between the Government smoothly returning to market financing this autumn or another humiliating round of rescue loans from other governments. The danger also remains that an eventual deal delivers only marginal benefit.
The benefit for the State of a long-dated bond – with a maturity between 20 and 40 years – would be that private investors could place their money with Ireland in the knowledge that they stood to be repaid before the Anglo debts fall due. But it is not as simple as that. Even though Ireland’s successful return to the private market later this year is in the ECB’s own interest, the bank is fearful of anything that could be construed as printing money for the benefit of a Member State. The technical term for this is “monetary financing”, a practice expressly forbidden in the EU treaties and something which conjures up nightmares in Frankfurt of nasty litigation in the German courts. Thus the mantra from the ECB remains the same: any new arrangement cannot violate European law.
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