€7bn 'about right' for 2011 taxpayer interest burden

THE REPUBLIC faces an interest bill of about €7 billion on its national debt next year, a senior Department of Finance official confirmed yesterday.

Speaking to the Dáil’s Committee on Public Accounts yesterday, the department’s secretary general, Kevin Cardiff, agreed under questioning that an estimate of €7.5 billion was “about right” for the interest bill faced by taxpayers on the national debt.

Committee member, Deputy Sean Fleming, estimated that, taking into account the €50 billion bill for bailing out the banks, the national debt would hit €150 billion at the end of the year, an estimate with which Mr Cardiff agreed.

On the basis that the Republic is paying an average interest rate of just under 5 per cent, Mr Fleming said this implied €7.5 billion to cover the interest alone.

Mr Cardiff estimated that the promissory notes the Government intends to use to fund the bailout of Anglo Irish Bank, the EBS and Irish Nationwide would cost €30 billion.

He said that the National Treasury Management Agency (NTMA), which is charged with managing the State’s debts, will borrow €3 billion a year over the next decade to fund the notes, which are legal promises to provide the finance to the banks as they need it.

The process of winding down Anglo Irish Bank by splitting it in two is likely to begin early next year, Mr Cardiff said.

His colleague Ann Nolan said the remaining €19 billion worth of property loans on the bank’s books are due to transfer to State toxic assets agency, Nama, over the next two weeks.

Ms Nolan told the committee the bank will start transferring the loans to Nama this weekend and that the process would take about a fortnight.

Anglo Irish is due to transfer a total of €19 billion worth of property loans to the agency, which will buy them at a 67 per cent discount, implying that it will pay about €6.3 billion for the debts.

The cost of recapitalising Anglo Irish stands at €29.3 billion, although Mr Cardiff reiterated that a worst-case scenario would require a further €5 billion.

Mr Cardiff defended the use of advisers such as lawyers Arthur Cox, merchant bank Merrill Lynch and accountants PricewaterhouseCoopers, between September 2008 when the Republic’s financial crisis unfolded and earlier this year.

A report by the Comptroller and Auditor General shows that taxpayers paid out a total of €34 million for the aid provided by these and other firms.

Some committee members argued that the Government chose not to take some of the advice offered, and suggested that the expertise offered by the firms was open to question in any case.

The department, and agencies such as the Central Bank and NTMA, hired these advisers. Arthur Cox was the single biggest beneficiary, earning €9.7 million for its services between September 2008 and last July.

Mr Cardiff argued that the quality of the advice was very high, and said that in many cases it was necessary to use international firms such as Merrill Lynch because of their “reach” and “expertise”.