Did Anglo really have to die so Ireland could be free?
Not only that, any sort of balanced assessment of the ELG claims and indeed the potential losses on the IRBC rump loan book has to take into account that the Government was always going to pay the bond holders and was always going to pick up any shortfall on the IBRC wind-down. The liquidation of the bank last week simply crystalised these liabilities.
Notwithstanding the above, however, the serious short-term difficulties associated with the liquidation mean it is legitimate to ask if the promissory note deal could have been done without collapsing Anglo. The Government has certainly intimated that this is the case but has been somewhat reluctant to specify exactly why. The short answer, however, is that yes, Anglo Irish Bank had to die so that Ireland could be free.
But the explanation as to why this was so is complex , extremely interesting and more than a little bit ingenious. The big obstacle facing the Government – and indeed the ECB itself – when it came to sorting out the Irish promissory note was the prohibition on the bank providing monetary finance to the Government. This is the so-called Article 123.
Collapsing IBRC allowed the Irish side to present the deal as Ireland giving the ECB something. The key to this was that the Irish Central Bank – and thus in effect the ECB – held the €25 billion outstanding promissory note as security on €25 million worth of exceptional liquidity assistance (ELA) given to the IBRC.
When the bank when into liquidation, the €24 billion had to be repaid. IBRC could not repay it so the Central Bank/ECB had to look to its security, which would in turn mean asking the Irish Government to make good on the promissory note.
The Government was only to happy to do this, but being broke can only do so by issuing the Central Bank/ECB with some low interest long-term bonds. It is all a bit Jesuitical but the net point is that the liquidation of IBRC allows the transaction to be viewed as the ECB looking to secure European taxpayers’ money, rather than giving Ireland a digout. By this analysis, the original sin was for the ECB to have taken the promissory note as security for ELA funding in the first place, which is now confined to history.
Given the likelihood of legal challenges to the manoeuvrings of last week, it is not that surprising the Government is keeping schtum on the exact rational for pulling the plug on IBRC. As a result, they can expect more criticism as the short-term negative consequences manifest themselves. The most problematic may prove to be the rank-and-file employees who had no part in the mismanagement of the bank. Not only are they losing their jobs, but they are expected to repay mortgages and loans to the liquidator that fired them.
Interesting to note that their loans are not transferring to Nama and will stay with the liquidator, who must follow the directions of the Minister for Finance – and can presumably write off their debts should the Minister approve!