ECB raises serious concerns about promissory note deal
Frankfurt says liquidation of defunct bank may have contravened European Union financing rules
Taoiseach Enda Kenny said the ‘ECB decided the deal does not contravene monetary policy and is quite legal.’ Photographer: Krisztian Bocsi/Bloomberg
A deal struck by Ireland last year to ease the burden of its bank debt raises serious monetary financing concerns although they could be mitigated to some extent by bond sales tied to the debt swap, the ECB said today.
Ireland won European Central Bank approval last year to stretch out the cost of bailing out collapsed Anglo Irish Bank after nearly 18 months of talks to slice billions off the Government’s borrowing needs, cut its budget deficit and help it exit an EU/IMF bailout.
As part of the debt swap, Ireland pledged to issue new bonds worth €25 billion, but to slowly drip-fed them into the market via the country’s central bank, with a minimum of €500 million to be sold by the end of 2014.
“The liquidation of the Irish Bank Resolution Corporation (IBRC) raises serious monetary financing concerns,” the ECB said in its annual report, referring to the name Anglo Irish was changed to after its nationalisation.
“These concerns could be somewhat mitigated by the disposal strategy of the Central Bank of Ireland.”
The Irish Times reported last month that Ireland was facing pressure to offload the bonds at a faster pace than the timetable originally outlined, citing sources familiar with the ECB’s thinking.
The timetable set out when the deal was struck will see the Irish central bank sell off at least a further €500 million of the bonds a year from 2015 to 2018, increasing to €1 billion until 2023 and €2 billion after 2024.
The disposal strategy was designed to avoid a flood of Irish debt coming on the market on top of regular issuance and the head of Ireland’s debt agency said last year that this was an important factor for investors in Irish debt.
Dublin was able to raise debt periodically during its three-year EU/IMF programme, which it exited late last year. It is fully funded for this year and has raised almost 60 per cent of the €8 billion needed to complete pre-funding for 2015.
A spokeswoman for the Irish Central Bank was not immediately available to comment.