Attention turns again to promissory note issue

Sat, Sep 15, 2012, 01:00

ANALYSIS:The question now is whether a deal on Anglo debt will be struck before ESM agreement over other banks

THE DEADLINE for an Irish debt deal may well be receding but discreet preparations are advancing. In question now is whether a deal to restructure the debts of Anglo Irish Bank is struck before an agreement to provide ESM capital to Bank of Ireland and AIB.

Ireland was not top of the agenda as Michael Noonan met his counterparts in Nicosia for a day-long meeting on the financial crisis. With a searing sun blazing down outside, Spain and Greece were to the fore as the ministers did their talking in a crowded conference room.

Although little was said publicly about Ireland beyond the now-familiar praise for the ongoing austerity drive, European Central Bank executive board member Jörg Asmussen pointed to a certain urgency in the bank’s latest engagements with the Government.

“The talks are ongoing. They are also ongoing here in Nicosia. There is nothing that I can report on the final outcome on this,” he said. “We are under heavy time pressure working on this question. This includes, this is well known, the promissory notes.”

Quite when a deal might be delivered remains unclear. However, Asmussen’s remarks would appear to open the possibility of a deal on the Anglo notes before any arrangement with the ESM.

Noonan was adamant yesterday that there would be no staggering of the debt relief deal. His aim remains to settle everything all at once, something that flows from concern that agreement first on one front might make it more difficult to do a deal on the other.

Even though the ECB’s willingness to do the deed after many months of resistance still hangs in the balance, the Anglo talks now appear to be moving more quickly than those on the ESM.

The delay over the ESM can be attributed to the lack of clarity over Spain’s intentions and to the numerous technical issues that remain to be overcome.

Questions abound, because the very notion of a European fund becoming the owner of commercial banks comes laden with its own complexities.

At what price would the ESM invest in individual institutions? On what basis? For how long? Would the fund have board representation in the bank? Would it direct the bank’s strategic policy? The list goes on.

In the official world, the examination of these issues and others is nowhere near resolution. Indeed, well-placed sources say the process is in its early phase only. Furthermore, any ESM investment in banks must await the introduction of a pan-European bank supervisor. The debate here has only just begun and is subject to politicking between Germany and the EU Commission.

At the same time, officials say the principle of a new arrangement for Ireland’s banks is gradually gaining acceptance.

This follows moves to tackle the bank deal at a summit in June when EU leaders made an explicit reference to Ireland in their communique. It was a crucial development, even if the floodgates did not open and certain euro zone figures remained doubtful.

For many months, the sceptics in Europe said any new banking deal for Ireland would raise questions over the efficacy of a bailout scheme that was perceived to be performing well.

The fear back then was that a new bank arrangement would send an undue distress signal about a fundamentally sound programme. The sense now is that repeated expressions of admiration for Ireland are designed to reinforce the message that the bailout is not in trouble.