THE ISSUE OF the Anglo Irish Bank promissory notes, which total over €30 billion, is back on the agenda as the government seeks a deal to avoid paying out €3.06 billion at the end of March.
Locked in what we are being told are “complex” negotiations with the European Central Bank, the government has said it hopes to swap what are effectively IOUs for a long-term bond that would be paid back over a longer period, thus reducing the burden of debt that has been built-up.
But that proposal appeared to hit a snag at the weekend when it was reported that the ECB had deemed a note-for-bond swap to be illegal. Government ministers insisted negotiations were continuing while the Tánaiste said that it would be “catastrophic” if Ireland didn’t get a deal.
What are the promissory notes?
Briefly, the promissory notes or IOUs were issued to the now defunct Anglo and Irish Nationwide after the State guarantee of the banks in 2008. These notes were deposited with the Central Bank and the newly formed Irish Bank Resolution Corporation (IBRC) borrows the cash equivalent of the IOUs from the Central Bank.
Under the terms of the deal, IBRC – or the government, seeing as it owns the bank – agreed to repay these IOUs over a 21-year period with payments of €3.06 billion due every year for the next ten years. The money that is repaid to the Central Bank is taken out of circulation and is effectively destroyed.
Some argue that the IBRC or the government should default on these payments but the government says this would equate to a sovereign default and would hamper Ireland’s chances of returning to normal lending markets when it exits the bailout.
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