So Minister Creighton is happy, she has gotten positive indications from Berlin that they will look favourably on our negotiations on the Anglo Promissory note. Of course thats nice and all but then the people that have to make the final call are the ECB. And of course the ECB is above politics, and we could never imagine that german politicians would have any influence on the ECB, could we..
The promissory note is not complex and not techinical. It is in essence money created by the Central Bank of Ireland and given to Anglo who used it to pay off depositors and bondholders. The ECB doesnt, for a number of reasons some good some bad some plain bonkers, want this money to stay in the system and so the Irish government takes tax or borrowed money, gives it to the Central Bank who then destroy it. Yes, the way in which this round robin within the country works is complex but the principle is not.
Anglo is a running sore, an affront on an ongoing basis to the state. In 9 weeks a sum of money equivalent to the total amount saved in the budget will be destroyed. That is immoral and politically and economically bonkers.
Anglo gains a very large part of its ongoing income from the interest on the pro note. It gets about 1.5b pa on an ongoing basis. Thats a vast sum and beyond the annual report we know very little about what it is used for. We do know that Anglo has annual expenses of c 300m, so that 1.5b comes in handy. We know that Anglo has a very different attitude to its dealing with the minister (who stands in loco parentis us in dealing with this wayward scion of the celtic tiger) : they ignore him and he seems to ignore them, allowing them to escape oversight and analysis. The every super Namawinelake has a set of posts on this : see here on wages, here and here on NAMA v IBRC . Six Anglo staff earn over 500k per annum – why beats the ever living hell out of me, for running what is in essence a giant debt collection service.
The government have staked a lot of political capital on a “deal” (nature unspecified) on the Anglo pro notes. The deal must do three things : it must, if as seems probable we are stuck with Anglo for the forseeable future, give sufficient income to Anglo to allow it to run in the manner in which it has become accustomed ; give a saving to the state in terms of cash outflows; be simple enough that it can be sold to the domestic public that count (the labour backbenchers mainly), although we can be sure that any sop thrown to them will be lauded by the media cheerleaders as a heroic seismic massive breakthrough
Or, it could decide that after 2 years in office with zero progress to show, it annouces that it will not be paying. This would have to be done by Enda and Noonan standing up in the Dail and saying so. Not a penny, no more, the letters of comfort underlying the pro note are withdrawn. That would of course represent a massive headache for the ECB, for the Central Bank and for the exceedingly well remunerated board and senior staff of Anglo. Some would cry it a sovereign default when in fact it is designed to avert same. Legal challenges and cries of dismay would emanate from the depths of the Bundestag but a Jardnyce v Jarndyce approach would spin that out. A clear statement now in public that we are not paying this in any way any more is needed. Delaying the repayment over 40 or 50 years is a cop out – its designed to avoid confronting the issue. Reducing the interest rate is a worse cop out as the flows of money are circular within the state. The moral, politically sensible and economically meaningful solution is to walk.
Fianna Fail, I am convinced, willingly or not, laid a trap for this government into which they have fallen and in which they are now writhing on the stakes. The trap was that no matter what austerity or restructuring, we would not get meaningful traction on getting out of the mire with the Anglo note hanging round the state finances. A person who is now a minister told me in january 2011 that “we will simply have to walk from Anglo” as the political and economic cost would be too much. Two years on its time to go walkies.
Brian M. Lucey 
Hi Brian,
I don’t believe there will be a deal which improves the financial position of the country. I hope that I am wrong.
It is very frustrating reporting on the so-called “negotiations” because the participants refuse to provide details. Fair enough, that is the case with most negotiations, so in itself you can’t read very much into the wall of silence.
But you should be able to answer some basic questions about any deal.
(1) Ireland is looking to improve its financial position. That will involve “give” by someone else. Who? The common response is the ECB but the ECB is us, it is Hans in Frankfurt, Carlos in Madrid and Giuseppe in Rome. Do these people know that they are being put in line to “give” something to Ireland? Ask them, and they have no idea what you’re talking about.
(2) We know what is in a deal for Ireland, or at least have an outline idea. What is in the “deal” for say Germany? If they want a bailout success story, the IMF can supply them with a list as long as your arm. If they are looking for a EuroZone success story, then we are really just a footnote, Spain, Italy and France are the real “stories”. And eventually there will be a success story. Greece will eventually return to a sustainable position. It mightn’t be in the euro, the European Union and might have another civil war beforehand, but it will get to a sustainable position, a “success story”. Beyond that, we really do suffer from Small Dog Syndrome if we think Europe cares that much. And before we take umbrage, how much do we care in Ireland about Greece, Slovenia or Cyprus?
Participants should be able to deal with the above questions, without revealing sensitive information. They can’t. And that is partly which I feel there won’t be a deal.
At this stage, having paid off most bondholders in the banks, particularly at Anglo and Irish Nationwide, having our banks still dependent on €71bn of direct ECB funding and €40bn in addition to Anglo and having passed the Fiscal Compact, I think the best we can hope for is some “feck off” money which will not be significant.
I recognise that there is a circular funds flow but because the interest expense is recognised in the General Governemnt Debt but not the income, we need to lower the interest expense. One way to keep “everyone” happy is to follow the example of major corporations when interest rates fall and “re-finance” the debt. The interest bill is high because of the various rates from 6% to 11% were used. Refinance and reduce this to circa 4%.
If the interest expense is reduced, the impact on GGD is reduced and therefore we reach the magic 3% deficit target quicker and therefore don’t have to make real cuts to basic services.