BANKS:THE GOVERNMENT said the cost of bailing out Anglo Irish Bank and the Irish Nationwide and EBS building societies with promissory notes or IOUs was one reason why it was seeking €15 billion budgetary measures over a four-year period.
The economic recovery plan says the effect of the notes provided to Anglo Irish, Nationwide and EBS means that to achieve the targeted budgetary changes by 2014, measures had to be taken over the next four years.
The cost of the promissory notes to the State would amount to an estimated €2.4 billion in 2014 and this would add 1.3 per cent to the State deficit that year, the Government said in the plan, if the measures were not taken.
The Government was given a two-year “interest holiday” by the European Union’s statistics office, Eurostat, this month on the repayment of almost €31 billion in promissory notes being provided to Anglo and the building societies.
The holiday on the interest repayments was negotiated as it lowered the budgetary deficit to under 10 per cent in 2011 in the Government’s efforts to bring the deficit in line with EU rules of 3 per cent of GDP by 2014.
Anglo has received €18.9 billion in promissory notes and will receive a further €6.3 billion, while Irish Nationwide will get about €2.7 billion, with a further €2.7 billion to be signed off by the European Commission. Some €250 million has gone to the EBS.
The Government said it had sought an increased €15 billion correction because the economy was smaller, there was reduced consumer spending and investment expected, and future economic activity would be muted.
“All of these factors suggest that the outlook for growth, both real and nominal, is less favourable than a year ago,” the Government said in its four-year plan.
“This means having to adjust more and in so doing there is an additional negative impact on the economy.”