Coup for Noonan but bigger argument to be won

Fri, Mar 30, 2012, 01:00

Noonan still has to win over sceptics in Berlin that the financial crisis merits a restructuring of Ireland’s wider debt, reports ARTHUR BEESLEY

CREDIT WHERE it is due. Minister for Finance Michael Noonan has struck a deal in Europe to defer a €3.06 billion promissory note payment to the former Anglo Irish Bank. Only weeks ago, it appeared the initiative was doomed.

In the scheme of things, the breakthrough should make it a little easier for Noonan to convince his euro zone counterparts to restructure the wider debt of Anglo and Irish Nationwide Building Society. That mountainous challenge, however, remains to be overcome.

Ever cautious, the European Central Bank let it be known at the start of this month that it was not in favour of deferral. The mood darkened only days later when EU economics commissioner Olli Rehn, who attends meetings of the ECB governing council, declared that Ireland must keep its promises.

Rehn’s use of the Latin expression “pacta sunt servanda” – respect your commitments and obligations – will go down in the annals of the Irish crisis as one of its more vivid sound-bites. The commisioner’s unambiguous words implied a certain level of impatience with Noonan.

“I actually wonder why this has to be asked at all,” he said in relation to the deferral question.

It was all the more surprising, therefore, when the Minister told the Dáil last week that he was in talks with the ECB to settle the €3.06 billion with a long-term State bond. At that point the ECB had already asked the Government to refine its proposal. By acquiescing to Noonan’s public statement, the ECB signalled a certain willingness to do business.

With the deal now done, it is clear that Irish taxpayers are still on the hook for the money. After all, this agreement merely postpones repayment until a much later date.

Yet there are benefits. By lessening the upfront burden of this part of Anglo’s debt, the objective is to boost its recovery prospects and give the Government a better chance of regaining access to private debt markets next year.

At the same time, the fact that the earmarked €3.06 billion won’t be spent this weekend means Ireland’s bailout aid will go a little bit further.

All of that is for the good. So too is the ECB’s implicit acceptance of the principle that the public finances in Dublin could do with a boost.

That will bolster Noonan’s argument as he proceeds with the campaign for a wider restructuring of Anglo debt.

The figures are enormous. As it stands, the promissory note arrangement will see the Irish people pay no less than €30.6 billion in capital by 2031 and a further €16.8 billion to rescue Anglo and Irish Nationwide. No matter what the EU-IMF “troika” says about the sustainability of Ireland’s debt, this is a hideous burden.

To succeed, however, Noonan will have to win over the sceptics in Berlin that the financial situation merits an extension of Ireland’s rescue programme.

Noonan wants restructuring without a debt “haircut”, but that still necessitates more support from either of the two euro zone bailout funds.

With notional Irish borrowing costs on the open market decreasing, the Minister has yet to win the argument that such support is warranted.

With Ireland still winning plaudits for executing the EU-IMF programme, the German view remains that an extension of rescue aid might send an undue signal of distress. By the same token, any new outburst of market pressure or deterioration in the domestic economy might force a change of attitude.

Dublin insists there is no link between the promissory notes and the fiscal treaty referendum. The deferral may help the Government campaign a little, but the wider promissory note issue will not be settled before polling day. Public anger at the household charge is another factor.