The Government is negotiating a restructuring of the €32bn in promissory notes that will be “very advantageous” to the Irish people, although this does not include any debt writedown, Central Bank Governor Patrick Honohan told the Oireachtas finance committee yesterday.
Mr Honohan said the priority was to secure a deal before the next €3.1bn promissory note payment at the end of March — echoing comments made by Taoiseach Enda Kenny and the finance minister.
Mr Honohan said he could not disclose too many details about the restructuring deal, other than it involved a significant lengthening of the time period over which the total amount has to be paid back and an adjustment of the interest rate.
As it stands, the Government is scheduled to make a €3.1bn payment every March until 2030 to cover the €47bn in principal plus interest payments relating to the promissory notes.
The Government is believed to be close to securing a deal whereby these payments will be wrapped up into a 30-40-year bond with a low interest rate.
Mr Honohan faced criticism from several members of the committee for not negotiating a writedown of the €28.1bn. He said any deal had to be done within the existing legal framework. “The ECB is not in the business of giving grants,” he said.
“Taking into account both the statutory position and wider policy stance of the ECB, an initiative of this type will be novel and as such, challenging.
“Using our knowledge of Central Bank law and practice, we have been working to build understanding and confidence around a set of proposed transactions designed to deliver for Ireland, while not taking other decision-makers too far outside their comfort zone.”
Mr Honohan said it was not possible to stop making the yearly payment to the ECB because there could “be dire consequences”. He said he didn’t want to speculate on what retaliatory measures the ECB could take but he pointed out the institution extends a huge amount of cheap funding to the Irish pillar banks at low rates.
Moreover, it is important that Ireland retains the confidence of the markets if the economy is to make a full recovery.
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