Tánaiste says talks with ECB 'ongoing'


The Tánaiste Eamon Gilmore has dismissed a report that the European Central Bank (ECB) has rejected Ireland’s preferred solution for handling the €30.6 billion promissory note from the ECB which was used to stabilise Anglo Irish Bank and Irish Nationwide in 2010.

Citing “EU sources familiar with the talks” the Reuters news agency reported today said a meeting of the central bank’s governing council on Wednesday and Thursday agreed that Irish plans to turn the note into long-term bonds that the ECB would then add to its portfolio amounted to “monetary financing” of the government, banned under article 123 of the EU treaty.

But speaking in Santiago where he is attending this weekend’s summit of EU leaders and their colleagues from the Community of Latin American and Caribbean States Mr Gilmore said his understanding was that no decision had yet been made and talks with the ECB are still on-going.

“The matter is still under discussion between Ireland and the ECB and those discussions are continuing and it is something that will be dealt with soon I hope. But the story that a decision has already been made is not the position,” he said.

The government is mounting an all-out diplomatic offensive to renegotiate the terms of the 10-year promissory note before the next repayment of €3.1 billion falls due at the end of March.

Minister for Finance Michael Noonan had proposed converting the note into long-term government bonds that would be taken up by the Central Bank with the intention of keeping the bonds in its portfolio for a long period.

Avoiding the hefty interest charge that kicks in with this year's payment would help reduce the budget deficit, still among the highest in Europe.

Taoiseach Enda Kenny told Reuters Insider television in an interview yesterday that getting relief on the promissory note was a crucial part of the country's path to returning to full market funding this year after its EU-IMF bailout programme expires.

"We've made no secret of the fact that it's unfair. We are the only people who have had to put up with that," Mr Kenny said, calling the talks with the ECB technical and complex.

The aim was to re-engineer, restructure the note and extend the maturity over a much longer period, he said.

Relations between Dublin and the European monetary authority have been tense since the ECB refused during the bailout negotiations to allow Ireland to make senior bondholders of Irish banks take a share of the losses incurred in the rescue.

Mr Kenny said his government remained "confident that we'll have a deal concluded by the end of March when the next payment is due".

Another EU source said one of the outstanding issues was whether the ECB could accept the swapped Irish bonds as collateral in its refinancing operations.

Central Bank governor Patrick Honohan, who represents Ireland on the ECB's board, described Dublin's proposal last week as a "novel" solution to reach a deal which would not take policymakers too far out of their comfort zone.

Mr Honohan said a solution was not yet "done and dusted" but ministers have been far more confident with Mr Noonan repeating last week that a deal was likely, although he cautioned that significant outstanding matters could derail it.

Fianna Fáil spokesman on finance Michael McGrath called for the Government to put aside its current strategy and "be open with the Irish people about what is going on".

"They must explain what they are asking for and what they will do if we do not get it," he said.

The Government postponed last year's €3.1 billion cash payment by issuing a 13-year bond and had floated the idea of replacing the rest of the payments with loans backed by euro zone bailout cash, but have concentrated their efforts on settling the issue with a long-term bond.

European economic and monetary affairs Commissioner Olli Rehn told Reuters that euro zone governments were looking at ways to help Ireland back to full market access that could include extending the maturity of the bailout loans it received in late 2010 or possibly extending a precautionary credit line to Dublin from the euro zone's ESM rescue fund.

The latter option could open the way for the ECB to buy short-term Irish bonds on the secondary market to help bring down its borrowing costs under the ECB's Outright Monetary Transactions policy.

However, a source familiar with ECB thinking said the governing council would rather hold its OMT weapon in reserve as a deterrent and not use it, noting that Irish borrowing costs had already fallen substantially and the spread over German 10-year bonds reflected market assessment of the credit risk.

He also said he did not expect Spain to request a precautionary credit line to trigger ECB intervention this year since its spread too had fallen to a level that reflected credit risk rather than any market premium due to a perceived risk of the euro zone breaking up or Spain exiting.

Additional reporting: Reuters

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