Government ‘favours bonds to finance Anglo rescue’

Irish authorities now favour using government bonds to refinance the rescue of the former Anglo Irish Bank, easing funding pressure on the State over the next decade, according to sources.

Under a plan being weighed up, the Government would inject as much as €40bn of notes of as long as 40 years in duration into the bank, said one source. These may be used as collateral for ECB funds, replacing €30bn of promissory notes used for the bank’s 2010 bailout.

The ECB has been in “intense discussions” on “enhancements” to Ireland’s programme, ECB executive board member Joerg Asmussen told reporters last Friday. ECB and Finance Department officials declined to comment on the plans yesterday.

Using bonds would mark a strategy shift by Finance Minister Michael Noonan who has advocated tapping the European Stability Mechanism to cut the cost of the nation’s banking rescue. The bond plan would sidestep potential political opposition in Europe to using euro-region’s bailout funds to refinance the bank’s funding, the people said.

The State issued Anglo with the promissory notes, or IOUs, two years ago to stave off the bank’s collapse. Now renamed Irish Bank Resolution Corp, the lender takes the notes and exchanges them with the Central Bank for emergency liquidity assistance.

This assistance amounted to €41.7bn at the end of June, with the notes making up the bulk of the collateral. The notes were included in Government debt in 2010, helping to triple the State’s borrowings over the last five years.

The Government is to pay IBRC about €3bn a year for at least the next decade to pay off the debt. IBRC in turn uses that money to repay the Central Bank.

Under the plan being studied, the State would issue a long-term bond to the lender. IBRC could take the bond to the ECB, which could provide funding to IBRC to replace that supplied by the Central Bank.