Lobbying for new Anglo deal ruffles feathers
Noonan may get a hero’s welcome at the ardfheis but he needs to mend fences in Europe, writes ARTHUR BEESLEY
THERE’S PLENTY of sympathy in Europe these days for Ireland’s fight to prop up the stricken banking sector. Sympathy won’t pay the bills, however, and Dublin’s campaign to ease the cost of the Anglo Irish Bank bailout has some way to go yet.
In the meantime, Michael Noonan may have to mend relations with the European Central Bank. The bank reluctantly agreed on Thursday to allow the Minister defer a €3.06 billion cash payment due to Anglo this week. It was not happy to hear Noonan apply yet more pressure on it just one day later.
Flush from the deferral deal, Noonan arrived in Copenhagen yesterday morning insisting he was undeterred by the ECB’s cool response to the initiative. The bank resisted for weeks and its eventual acquiescence was clearly lacking in enthusiasm. As if to emphasise the point, a spokesman said the ECB expected all future promissory note obligations to be fully served on time.
Noonan wants to achieve the opposite, his campaign for better terms centring on replacing expensive promissory note IOUs with cheaper bonds issued by the EFSF or ESM bailout funds. Whether he can do that depends primarily on his success in bringing Germany and other sceptical member states on board.
This will take time, and the European response to the deferral arrangement was far from celebratory. “We are studying this for the moment,” said EU economics commissioner Olli Rehn. “I have plenty of sympathy for the Irish people as they try to reduce their debt burden. We see that it’s important that this issue will be thoroughly explored.”
Jean-Claude Juncker of Luxembourg, chief of the euro group of ministers, adopted a similar position. “I don’t think that we will have a definite answer to this question,” he said in relation to the deferral. “I’m more than sympathetic to the Irish. It’s about substance.”
As these questions play out, Noonan said yesterday his top priority was to get a pledge from the ECB to provide medium-term low-cost funding in any new arrangement to the Irish Bank Resolution Corporation, as Anglo is now known.
His thinking is that the EFSF/ESM scheme he is seeking won’t work without an explicit ECB funding commitment.
But his declaration mystified the ECB, as it is already obliged by law to accept EFSF and ESM bonds as collateral for its financing operations.
As such, there is no question over its participation. Even if the commitment of medium-term support would be an implicit one, the ECB would be tied in for as long as any EFSF/ESM bonds remained outstanding.
And that could be a very long time indeed. The promissory note scheme Noonan is so desperate to rework does not unwind for another 19 years. Noonan’s plan involves bonds issued for 30 or 40 years. This is the stuff of nightmares within the ECB, whose objective over time is to reduce its exposure to Ireland: direct liquidity aid to Irish banks exceeds €100 billion.
The view in the ECB was that the Minister was pushing the bank a little too hard, especially as only hours had elapsed since it yielded on the deferral question. “This risks further antagonising the ECB governing council,” said a euro zone source.
“His remarks were not helpful, particularly on the day after the bank agreed to facilitate an operation designed purely to give him an opportunity to make a statement saying that the payment of the promissory notes was settled with bonds.”
The feeling within the ECB is that it simply cannot explicitly promise to provide medium-term funding. This stems from concern not to stray into the realm of monetary financing for a government. Such financing is illegal under EU law and distinct from central bank financing for banks, even if those banks are guaranteed or owned by states.
The battle is not yet won, although Noonan may well receive a hero’s welcome at the Fine Gael Ardfheis this morning.