40-year bond could be issued to save State billions on Anglo

THE GOVERNMENT is considering issuing a 40-year bond to refinance the bailout of Anglo Irish Bank, allowing it to significantly reduce its annual repayments to cover the cost of the bank’s collapse.

The bond would replace the promissory note scheme through which the State pays off Anglo Irish Bank’s debts, according to Bloomberg reports, citing two sources familiar with the matter.

The main advantage of issuing a long-term bond is that the State would not have to pay the €3 billion a year it gives to the Irish Bank Resolution Corp (the former Anglo) on the back of the promissory notes. At present, the bank takes that money and gives it to the Irish Central Bank, which is funding IBRC through emergency liquidity assistance.

A Government spokesman declined to comment last night beyond saying that “complex technical discussions are ongoing and the objective is to deliver the best deal possible for the Irish taxpayer”.

Opting to issue a bond would mark a change of focus by Minister for Finance Michael Noonan, who has favoured accessing the euro zone’s long-term bailout fund, the European Stability Mechanism (ESM).

However, the bond plan would sidestep likely political oppposition within the EU to using ESM funds to refinance the bank’s funding.

Under the proposal, the State would issue the long-term bond to IBRC. It, in turn, would take the bond to the ECB as collateral which, if acceptable to Frankfurt, would allow the central bank to provide funding, replacing that currently coming from the Irish Central Bank.

The ECB is understood to prefer that Ireland avail of the ESM route but this would require the approval of all members of the bailout fund.

The difficulties in securing such agreement were highlighted yesterday in Berlin when German chancellor Angela Merkel ruled out quick agreement on banking debt relief for Ireland through the ESM, saying there is “no change in the German position.

As the German leader faces into a busy autumn – and her final year in office before next September’s general election – she made clear her euro crisis gaze is not fixed on Dublin, but on Athens and Madrid.

“As far as the Irish programme is concerned, I see no change in my agenda at the moment,” said Dr Merkel. “Talks are ongoing, I know the Irish requests and I wish, above all, that the Irish programme succeeds.”

Last month, German finance minister Wolfgang Schäuble told The Irish Times that Berlin would not back any debt relief proposal that markets might perceive as a second Irish bailout.

Talks between the Government and the European Central Bank about restructuring Anglo’s debts have intensified over the last week. Mr Noonan discussed the matter with ECB chief Mario Draghi at an EU meeting in Cyprus on Friday, with discussions continuing over the weekend. ECB executive board member Jörg Asmussen said at the weekend that the bank had been in “intense discussions” on “enhancements” to Ireland’s programme.

A long-term bond would not, in iteself, cut the total cost of repaying the State’s debt in relation to Anglo, merely postpone them. It is understood the Government would continue to press for a way of reducing that cost in the longer term – possibly following a resolution of any negotiations with Spain over its requirements to cover bank bailouts.

Ireland is hoping that its remaining functioning banks will be recapitalised retrospectively by the ESM once it is up and running. – (Additional reporting, Bloomberg)