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ECB set to discuss Irish deal on promissory note

Bloomberg reports Patrick Honohan will formally ask the ECB’s permission today to restructure Ireland’s promissory notes deal.

Patrick Honohan is likely to today seek formal ECB approval for a deal to swap Ireland's first promissory note repayment for a government bond.
Patrick Honohan is likely to today seek formal ECB approval for a deal to swap Ireland's first promissory note repayment for a government bond.
Image: Mark Stedman/Photocall Ireland

THE EUROPEAN CENTRAL BANK’S Governing Council will probably be asked today for formal approval for a deal on Ireland’s promissory notes, as indicated by Michael Noonan last night.

The fortnightly meeting of the ECB’s top decision-making authority – of which Central Bank of Ireland governor Patrick Honohan is a member – is likely to discuss the matter today.

The state had been due to make the first repayment on the promissory notes – a form of IOU given by the State to Anglo Irish Bank, and then used by Anglo to access funds from the Central Bank – at the end of this month, with €3.06 billion due.

Last night Michael Noonan told the Dáil that while a deal was not yet completed, there was now general agreement that the first repayment could be replaced with a government bond.

This would not reduce the overall debt owed by Ireland, as it would still be due to pay the €3.06 billion at some other point in the future, but it would crucially mean that the government did not have to make a cash payment at the end of this month.

Bloomberg reports that Patrick Honohan will today seek formal ECB clearance to accept the bond-for-note swap – approval which is considered highly likely given the nature of Noonan’s public disclosure last night.

Net result

While the conclusion of a deal would be a welcome development for the government, which will claim the agreement of any deal as a major diplomatic victory, the details of the bond being ‘sold’ to IBRC are still yet to be disclosed.

While it is widely assumed that the bond would not be repaid until 2025, it is not clear whether the bond will mean what are called ‘coupon repayments’ – where bondholders are paid cash every year or so, as interest on those bonds.

If the bond does carry coupon payments, the overall effect of the bond could be that the State will pay more than the €3.06 billion it is due – though this could mean a net saving to the State given the effects of inflation over a 13-year period.

This morning Fianna Fáíl’s finance spokesman Michael McGrath said the deal, as indicated by Noonan, would assist Ireland’s re-entry into bond markets – and that this would be further strengthened if a deal for the 2013 repayment could also be made.

“This is a good first step,” he told RTÉ’s Morning Ireland, while stressing that the deal could only be seen as “an interim measure” while the government continued negotiations to deal with the total bill for the €31 billion in notes, which will cost almost €48 billion after interest.

McGrath said Ireland needed to secure not just a deal to manage the repayments of the promissory notes, but a deal to reduce the amount it owed.

Read: Noonan outlines possible changes to promissory note deal >

More: Colm McCarthy: Irish bank debt was incurred “under threats” from ECB >

About the author:

Gavan Reilly

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