Anglo Irish Bank And Irish State: Done Deal Following The Liquidation

Following the liquidation of Anglo Irish Bank yesterday night, the Irish government reached a deal with the ECB on the promissory notes it injected in Anglo in 2010. This will improve Irish debt sustainability by substantially reducing cash flows requirements over the next 20 years. It will also improve Ireland’s chances to exit the EU/IMF programme at this end of the year.

Ireland reached a deal with the ECB to lower the cost of its 2010 bank bail-out. It follows the liquidation of Anglo Irish Bank legislated yesterday night and the transfer of its assets and liabilities to the National Asset Management Agency.

The deal concerns the EUR 28bn of promissory notes injected by the Irish State into Anglo Irish Bank in 2010 when the bank began to run out of eligible collateral for ECB main refinancing operations and had to resort to Emergency Liquidity Assistance (ELA) provided by the Central Bank of Ireland (CBI). Promissory notes were scheduled to provide a series payments (over 20 years) to Anglo subsequently used to repay ELA debt to the CBI.

Promissory notes had been the subject of long-standing negotiations between the Irish State and the ECB. The ECB opposed any arrangement on promissory notes on the ground that it would be akin to monetary financing while the Irish government invoked that the EUR 3.1bn annual payments were more or less equivalent to austerity measures implemented each year by the Irish government. Actually, those transactions were mostly circular and the real net cost for the Irish State derived from the high cost of tapping EUR 3.1bn a year on capital markets to repay a low-interest loan to the CBI.

Under the deal, promissory notes will be replaced by long-term sovereign bonds with the first maturing in 2038 and the last in 2053. This rescheduling of Irish bank-related debt will have no impact on debt-to-GDP ratio but will improve debt sustainability by reducing cash flow requirements. Prime Minister Enda Kenny said there will be a EUR 20 billion reduction in the borrowing requirement of the National Treasury Management Agency (NTMA) in the coming years as a result of the changes.

BY Thibault MERCIER

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