Draghi casts doubt on Anglo debt deal

Fri, Dec 7, 2012, 00:00

European Central Bank chief Mario Draghi has questioned whether the bank might recast the debts of Anglo Irish Bank, suggesting such a deal would break EU law.

Mr Draghi’s remarks, one day after Dublin introduced a €3.5 billion budget package of cutbacks and tax hikes, raise fresh doubt over the Government’s long campaign to restructure the Anglo Irish Bank promissory note scheme.

They came as European Council president Herman van Rompuy urged EU leaders to agree terms within four months for direct bank rescues by the European Stability Mechanism fund, another of the Government’s prime objectives.

Speaking to reporters in Frankfurt after the ECB kept its main interest rate at a record low of 0.75 per cent, Mr Draghi welcomed the budget measures. “It’s a reaffirmation of the successful – I would say – commitment of the Irish Government to restoring sound economic conditions, both fiscal, but also, more broadly, structural conditions,” Mr Draghi said.

Asked if it was reasonable in light of the budget to expect a deal on Anglo’s debt before the next €3.1 billion payment falls due in March, he said the ECB would not illegally print money.

“The ECB cannot undertake any agreement – cannot enter into any agreement – that is being viewed as monetary financing, that would be forbidden by article 123 of the treaty,” he said. “So, other than that, there is plenty of goodwill.”

Article 123 of the EU treaty, known as the “no-bailout clause”, forbids the ECB from providing overdraft facilities or other forms of credit to any central government or public body.

Minister for Finance Michael Noonan said in September that the ECB was now more willing to pursue talks with the Government but no agreement was reached before the budget.

On RTÉ radio yesterday, Mr Noonan said he was “pretty confident” of reaching an agreement to avoid the March payment. “It’s not done yet,” he said. “I don’t want to pre-announce or anything like that.”

Elusive solution

Mr Draghi’s remarks suggest that a durable solution acceptable to all sides remains elusive so the Government will be under severe pressure in January.

Mr Draghi was one of three senior Europeans who helped Mr van Rompuy draft proposals for a summit next week at which EU leaders aim to agree another plan to fortify the single currency. While the question of direct bank rescues by the ESM has fallen off the immediate political agenda, Mr van Rompuy’s paper aims to bring it back to the fore. “The legal and operational framework for ESM direct bank recapitalisation should be finalised by end-March 2013,” it states.

The timetable is regarded as “very, very ambitious” in diplomatic circles. However, the move is positive from the Government’s perspective, as it wants the ESM to take direct equity stakes in AIB, Bank of Ireland and Permanent TSB.