Negotiate new terms on promissory note before April, economists advise

IRELAND SHOULD make every effort to restructure the promissory note it is using to recapitalise the Irish Bank Resolution Corporation (IBRC) before the next scheduled payment date of March 31st, according to three leading economists.

Prof Karl Whelan, Prof Brian Lucey and Dr Stephen Kinsella were addressing the Oireachtas Joint Committee on Finance yesterday.

Ireland is due to pay an instalment of €3.1 billion on the promissory notes it committed to the IBRC on March 31st. The first instalment was paid on March 31st last year. Together with interest, about €47 billion is due to be repaid over a 20-year period.

“We have a technical possibility here that should be exploited openly and without fear,” Prof Lucey said. “If we can extend, write down, delay – in some way reduce the impact of the promissory note on the Irish taxpayer – we can get ourselves back to health.”

In 2010, the then government committed to paying €31 billion to Anglo/Irish Nationwide in the form of promissory notes. The banks present those notes as collateral to receive exceptional liquidity assistance (ELA) from the Central Bank. The bank in turn borrows money for the ELA facility – traditionally a short-term measure – from the European Central Bank (ECB).

Prof Whelan said that, despite the focus on the interest rate being charged on the promissory notes, any change in interest rate would be irrelevant in the long term.

In the short term, he said, it was preferable for Ireland to defer or sustain the repayment of the notes until Ireland’s economic situation improves, and hence hasten Ireland’s departure from the IMF-EU bailout.

Prof Whelan also said it was imperative that the Government show it can implement changes to the promissory note payment in a way that does not make the IBRC insolvent, as the ECB does not permit loans to insolvent credit institutions.

The ECB can vote by a two-thirds majority to stop any ELA programme, he noted, while any debt restructuring can also be blocked.

Dr Kinsella, of the University of Limerick, said Ireland could return to debt sustainability sooner if the cost of the promissory note was reduced.

“The amount of borrowing, based on 2012 projections, is relatively manageable if we could remove the €3.1 billion,” he told the committee. “Any deferment of payment of these notes helps us to recover quicker.” Responding to an assertion by Sinn Féin TD Pearse Doherty that Ireland will have less room to argue for restructuring once the State’s debt sustainability improves, Prof Lucey agreed it would be more difficult for Ireland to restructure the promissory note after March.

“Once we start paying under this schedule, I think it will be next to impossible to renegotiate or get out of that schedule.”

Prof Whelan said any discussions between the Government and European authorities about restructuring the promissory note should take place in public as much as possible. “The real question is a political one,” he said.