The deal reached on scrapping the reviled promissory notes received a muted welcome last night with questions raised over how effective it would be in ridding the country of Anglo Irish Bank’s poisonous legacy.
Enda Kenny described it as a “historic step on the road to economic recovery” but concerns were raised that it may also have lengthened the road the country must travel to put the Anglo disaster behind it.
And while Finance Minister Michael Noonan indicated it would provide breathing space for the exchequer and growing room for the economy, opponents argued that given the scale of the overall national economic woes, it amounted simply to making us all live within only a slightly bigger cage...
Q. What has the deal achieved?
A. It has replaced the short-term, high-interest promissory note payable at a rate of €3.1bn annually until 2023 with long-term, low-interest bonds payable on interest-only terms until 2038 with principal payments to be spread between then and 2053.
Q. How will that help us?
A. Straight away there is financial relief as we don’t have to make this year’s payment of €3.1bn which was due at the end of March. Longer term, we won’t have to borrow the €20bn that would have been needed to meet the remaining annual payments. We will have to pay interest on the bonds, but initially the Central Bank will hold the bonds so interest will be paid within the State. The Central Bank will gradually sell the bonds on the open market so the interest liability will be more evident down the line.
Q. Is there a downside?
A. We would have been clear of the heaviest demands of the promissory notes by 2023, with smaller payments continuing until 2031, but we won’t even begin to pay back the principal on the new bonds until 2038 and will continue to make principal payments until 2053, which passes the burden on to the next two generations.
Q. Will the deal ultimately cost us more?
A. In simple terms, probably, but after 40 years of inflation, the sums we will pay back in 2053 will be considerably less in real terms than they are in today’s values. The promissory note payments plus interest would have come to a total of €48bn, which would still be a colossal sum in 18 years’ time.
Q. How will the deal affect the next budget?
A. According to Michael Noonan, it will reduce the need for spending cuts and tax increases by about €1bn. To put that in context, Budget 2013 last December imposed €3.5bn in cuts and extra taxes, so the new deal would knock almost a third off that. It will not, however, eliminate the need for further cuts and tax rises in Budget 2014.
Q. What will it do for the economy in general?
A. The markets have responded well, regarding it as a positive move, and anything that boosts investors’ confidence in Ireland is good for business. Mr Noonan said he believed it would aid growth and job creation but it would be hard to pin any such improvements on any one development.
Q. So how big a deal is the deal?
A. Taken in isolation, it was nowhere near as radical as getting a debt write-off, but it is a much more manageable reorganisation of the Anglo-related debts and will perhaps embolden the Government to seek restructuring of other debts.
Unfortunately, the former Anglo and its now equally defunct replacement, IBRC, were only a small part of the country’s problems. We have paid alm-ost €70bn in total bailing out former and existing banks, our total national debt is almost €200bn and day-to-day Government expenditure still exceeds revenue by billions of euro. It’s a case of one small step on a very long road.
Quinns to fight liquidation
The Quinn family are believed to already be preparing a legal challenge to the legislation liquidating the former Anglo Irish Bank.
A key section of Irish Bank Resolution Corporation Bill 2013 provides for an immediate stay on all proceedings against IBRC.
It states that no further action can be issued against the bank without the High Court’s consent.
The Quinns were due to begin an action against the bank in April over the legality of €2.3bn in debts due to the bank.
The new bill does not, however, stop the action IBRC has been taking against the Quinns in its pursuit of €2.8bn which it claims is owed to it.
Last night the Impartial Reporter newspaper in Fermanagh reported that the Quinn family are to challenge the liquidation legislation in court.
It quoted a source as saying: “The legislation was passed hoping the family would drop their case but that won’t be happening. The family is very confident of achieving a positive result and are more determined than ever.”
Earlier in the day, the Quinn Manufacturing Group, in which IBRC had a minority sharing of 24.9%, had issued a statement saying the liquidation had no impact whatever on its business.
It said IBRC had no involvement in the management of the group.
— Stephen Rogers
There were six IBRC executives earning over €500k each year, including CEO Mike Aynsley, whose package was €633,000.
They will now be entitled to statutory redundancy payments. In Mr Aynsley’s case this amounts to €1,200 per year for every year he was with the bank. He joined in 2009, so if he decides to return to his native Australia, he will have a cheque for €4,800.
Mr Aynsley was contracted to run IBRC until 2015. But because it was liquidated, all employment contracts are null and void.
The salary levels of the senior management team at IBRC caused a huge public backlash when they emerged through a parliamentary question last November.
Chief financial officer Jim Bradley had a basic salary of €400,000 but pension contributions and expenses pushed the total package over €500,000. The head of asset recoveries, Tom Hunersen; the head of specialised asset management, Richard Woodhouse; and the head of Irish recoveries, Mark Layther were on similar packages.
— John Walsh
Picture: Elliemai O’Hare, 2, of Boreenmanna Rd, Cork, who will be aged 42 when the last of the payments for Anglo will be made. Picture: Jim Coughlan
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