Ireland’s government is hardening its rhetoric to try to seal an accord with the European Central Bank on refinancing the rescue of former Anglo Irish Bank Corp.
As talks with the ECB continue, Energy Minister Pat Rabbitte yesterday said the state won’t make the 3.1 billion euro ($4 billion) annual instalment due to the lender in March under its current payment schedule.
“We didn’t pay the promissory note this year and as far as I am concerned, we are not going to pay it next year,” he said in an interview with Dublin-based broadcaster RTE yesterday. “It’s as simple as that.”
Ireland nationalized Anglo Irish in 2009, and injected 31 billion euros into the bank and rival Irish Nationwide Building Society in the form of so-called promissory notes, a form of IOU. The lenders, which merged last year and renamed as Irish Bank Resolution Corp., use the notes to access cash from the country’s central bank, which is due to be paid back over more than a decade.
The government “has learned that the softy-softly approach to negotiations was not working,” said Dermot O’Leary, chief economist at Dublin-based Goodbody Stockbrokers, adding the administration is taking a “more aggressive stance.” “This is probably a wise move.”
Rabbitte said he believed an accord with the ECB would be struck on the issue of refinancing the debt before the next payment, though the institution was difficult to bring around to a deal, according to RTE.
The government is considering injecting as much as 40 billion euros of securities of as long as 40 years into the bank, according to a person familiar with the talks in September. That would avoid the Irish state having to raise at least 3 billion euros a year for the next decade to pay down the central bank borrowing.
Irish Central Bank Governor Patrick Honohan said while the state will make good on the Anglo Irish bailout, it needs more time than it currently has, the Frankfurter Allgemeine Zeitung reported three days ago, citing an interview.
Honohan said it is possible, if complex, to restructure the notes in a legally watertight way that is not open to criticism of being a form of monetary financing of a state.
Four days ago, ECB President Mario Draghi said in reply to a question on a possible Irish accord, that while the central bank can’t do anything that would be viewed as monetary financing, “other than that there is plenty of goodwill.”
Yields on the country’s benchmark 2020 bond rose 4 basis points today to 4.62 percent, down from 7.4 percent at the start of June and from as high as 14 percent in July 2011.
“It should be remembered that Ireland settled the 2012 promissory note payment through a complicated bond issue and repo transaction and so a similarly styled transaction may ultimately occur again next year,” Owen Callan, a Dublin-based analyst with Danske Bank A/S (DANSKE), said in a note, adding “we would suggest not reading too much” into Rabbitte’s comments.
“The government is under pressure from the electorate to show they are fighting for the best deal for Ireland in terms of relief on the cost of rescuing its failed banking system,” Callan said.
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