Failure to renegotiate promissory note ‘potentially catastrophic’, says Gilmore


Tánaiste Eamon Gilmore has warned of “a potentially catastrophic effect” on Ireland if the country is unable to renegotiate the terms of the promissory note from the European Central Bank used to stabilise Anglo Irish Bank and Irish Nationwide in 2010.

In a significant escalation of the Government’s rhetoric in its campaign to renegotiate the country’s bank debt, Mr Gilmore told yesterday’s gathering of EU and Latin-American leaders in the Chilean capital that Ireland’s expected exit from the bailout programme this year depended on sealing an agreement to lower the country’s debt burden.

Speaking before an audience that included German chancellor Angela Merkel, the Tánaiste said that by “shouldering a great burden of debt” Ireland had “shown solidarity with Europe when the risk of contagion was high” and a deal on lowering the burden now required “a greater reliance on that solidarity that underpins the union”.

Annual repayments

The Government is negotiating to have the life of the 10-year €30.6 billion promissory note from the European Central Bank extended to reduce the €3.1 billion annual repayments, the next of which falls due at the end of March.

Asked what the “catastrophic” effect of a failure to renegotiate the promissory note might be, Mr Gilmore told The Irish Times that financial markets “have already factored in” a debt deal for Ireland.

“Clearly if that were not to be concluded that would have a market consequence,” he warned.

Mr Gilmore said a deal on the country’s debt also had to include Dublin’s request to have the recapitalisations of AIB and Bank of Ireland retroactively funded by the European Stability Mechanism (ESM), adding that a deal on the promissory note alone would be insufficient.

“It is not an either/or here,” he said. “We are determined to get both issues resolved. We have never posited one against the other.”

He denied the Government was considering a new loan from the International Monetary Fund should it fail to reach agreement with the ECB and Ireland’s EU partners on the promissory note and the inclusion of legacy assets in the ESM.

“We are not contemplating a loan with the IMF. The discussions that are taking place with the IMF are about exit from the programme and about post-programme Ireland. Our intention is to exit the programme.

“We are determined to do this. But concluding an agreement on the promissory note is very much part and parcel of that.” As well as yesterday’s speech, Mr Gilmore argued the Government’s case during a number of bilateral meetings with EU leaders during the summit. Among those were talks with Dr Merkel and France’s prime minister, Jean-Marc Ayrault.

The Tánaiste said he believed Ireland’s diplomatic efforts were winning its EU partners around to the country’s request for a debt deal.

One of the key meetings over the weekend was with Finnish prime minister Jyrki Katainen, who is critical of having the recapitalisations of AIB and Bank of Ireland retroactively funded by the ESM.

Finnish concerns

It is understood the Tánaiste used the meeting to seek to assuage Finnish concerns that the Irish request for retroactive funding from the ESM risked exhausting its funds.

A Finnish official said his government hugely admired Ireland’s handling of its crisis but it wanted to avoid applying ESM funds in a way that depleted them to the point where governments were asked to inject more capital, a requirement the Finnish government believes would be politically very difficult to achieve in a number of European countries.

Finland is worried that a failure to secure the ESM’s credibility in financial markets could risk undermining the euro zone’s banking union due to come into effect next year.

But the Irish side is understood to have argued that it is in a unique position, having already identified the amount of capital required to recapitalise AIB and Bank of Ireland and believing it is not of a scale that would deplete the ESM.

Both sides indicated that with no final decision yet taken, discussions will be ongoing before the June deadline for finalising the scope of the ESM.