ECB seeks refinement of Cabinet's €3bn plan

 

THE EUROPEAN Central Bank has asked the Government to refine its plan to avert a €3.06 billion cash payment next week to the former Anglo Irish Bank.

The bank’s request comes amid indications that its chief Mario Draghi is warming to the notion of an initiative to restructure Anglo’s wider debt, now managed by Irish Bank Resolution Corporation.

The ECB wants to reduce IBRC’s reliance on highly risky emergency loans to fund its operations. While the restructuring scheme would achieve that, Bundesbank chief Jens Weidman and German ECB executive member Jörg Asmussen are sceptical.

Even if Mr Draghi’s support would increase the likelihood of a better deal, no agreement is in prospect before a €3.06 billion promissory note debt falls due on March 31st. This has led the Government to propose making the payment via a long-term State bond instead of cash.

Hopes of a breakthrough were raised when Minister for Finance Michael Noonan told the Dáil on Wednesday that talks with the ECB were under way. Even though the minister was acting in concert with the ECB, the bank is withholding judgment on his proposal.

At a meeting on Wednesday, the ECB governing council neither accepted nor rejected the Irish proposal and sought further information and clarifications from Dublin. “They didn’t have enough to make a decision,” said a euro zone source. A further council meeting was expected yesterday but none took place as the governors concluded their talks ahead of schedule the previous evening.

In question now is whether Irish and EU/IMF “troika” officials can, before the March 31st deadline, refine the proposal to the satisfaction of the ECB, whose blessing is needed for the initiative to go ahead. The Government was expected to update its EU partners on the talks with the ECB at a meeting yesterday of finance ministry officials from euro zone countries. Mr Noonan issued a new statement in which he was more cautious than on Wednesday. Recent developments should be seen as an initial step to facilitate a medium-term rather than an immediate deal, he said.

While the ECB believes the Government should still proceed with the cash payment tomorrow week, alternative means to reduce the burden may yet come into play. “We’re in exactly the same place as we were yesterday,” the euro zone source said. “Not making the cash payment is not an option. The question is: what happens the cash?” The source declined to elaborate.

The ECB’s stance is rooted in concern that any failure to make payment would trigger a default on debt backed by IBRC. However, Mr Noonan insists the settlement process under discussion in respect of the March 31st payment does not involve the variation of any of the terms of the existing promissory notes.

The ECB prefers to deal with the Anglo debt question in the round, with equal treatment for the promissory notes due next week and those that fall due over the 20-year lifetime of the scheme.

This raises questions over the attitude of countries such as Germany, whose support is a prerequisite for the wider restructuring initiative. The Government plan assumes an extension of the EU/IMF bailout programme by drawing down bonds from the ESM or EFSF bailout funds to keep IBRC afloat, something that cannot happen without the support of all other euro countries.

The ECB’s preference is to see all players agree in principle to restructure the debt before it moves in relation to the looming €3.06 billion debt. The ECB declined to comment on its discussions with the Government.