Government banks on high talk and risky gamble paying off

The 23 important men of the European Central Bank’s Governing Council will sit down together four times between now and Mar 31.

That is the date Ireland is due to pay €3.1bn to the former Anglo Irish Bank, which in turn uses it to pay back the Central Bank, which deducts it from the amount it owes the ECB.

What those men agree to over the next four meetings will have a huge impact on future budgets and Ireland’s ability to emerge from the bailout programme and get the country on a better financial footing — easing the austerity burden for all.

Their deliberations will also have huge political consequences for the stability and credibility of the Coalition, which has staked almost everything on reaching a deal, and thereby reducing the massive burden of bank debt.

It seems such a deal could be slipping from the Government’s grasp. There is a significant mismatch between what the Government thinks can be achieved and what the ECB is willing to do.

The Taoiseach admitted in the Dáil yesterday there are “very significant challenges” in relation to the negotiations. He was responding to reports the ECB had rejected Ireland’s preferred solution. He was stepping back from the confidence shown just earlier this month when Kenny said a deal was needed for Ireland to exit the EU/IMF bailout.

Crucially, he did not say what sort of deal this would require, but that “solidarity is a two-way street”. He added that, “for Ireland to exit its programme successfully, we do need a conclusion to the negotiations on the promissory note”.

Kenny went further in the Dáil a couple of days later: “I am confident that we will secure a deal before the end of March which is the payment date for the next €3bn... I don’t contemplate not getting a deal here.”

Communications Minister Pat Rabbitte had kicked off the latest round of talking up a deal in early December on RTÉ’s The Week in Politics. “As far as I’m concerned we are not going to pay it this year,” he proclaimed. Only last weekend, Tánaiste Eamon Gilmore said the consequences of not getting a deal could be “catastrophic”.

The Government was playing a risky game, either attempting to put pressure on the ECB to come up with a deal or — in Gilmore’s case — trying to convince Labour supporters that he was acting tough.

Specifically, the Government was hoping to wrap the promissory note into a 40-year bond — something the ECB now says would break its rules on monetary financing or directly lending to member states.

With just eight weeks to go, a solution will have to be found that can satisfy the ECB that it is not breaking and rules and satisfy the Irish public that the Government is living up to its promises.

If the deal that is reached falls far short of the expectations the Government has been raising among the public then its gamble will have failed.