Promissory notes deal ‘crucial’

Getting a deal on the promissory notes is crucial to an Irish recovery, AIB’s chief economist told Cork Chamber’s breakfast briefing yesterday.

Oliver Mangan said a deal on the Anglo promissory notes could work as a backstop against Ireland slipping into a deeper recession if the global economy continues to contract, causing Ireland to miss budgetary targets.

He welcomed comments by a minister who said Ireland would not pay the €3.1bn owed in March.

“We have got to start playing hardball with this. I was delighted with Pat Rabbitte’s comments at the weekend because we just can’t pay this,” he said, adding that many econo-mists shared this view.

“I had one of the top European economists in the bank last week doing a presentation after the budget and he said, ‘you guys are too nice. You really have to start being playing hardball with this.’”

The promissory note needs to be viewed as a mortgage or a war bond, Mr Mangan said. What Ireland needs to secure is a lower interest rate over a long period of time.

“The promissory note is structured like a mortgage: We pay our principal interest rate at a very high coupon; the interest rate is very high at 8%. This is absolutely killing us the way that they structured it. We need that restructured into a long-term bond with a very low coupon.”

Mr Mangan said Ireland needs to restructure the bonds so as to have as low an interest rate as possible.

“The way that this needs to be refinanced is on either step coupons or zero coupons. We need as much relief in the next three, four, five years that we can get.”

He continued: “There is no point in talking to the Germans about a debt write-off. We need to be looking out for an interest rate holiday. We could do zero for two to three years and then go to 3%-4%. The longer the terms of the mortgage, the better.

Due to upcoming German elections, Mr Mangan said he felt a debt write-off would be impossible.

“We have to realise that there is an election in Germany so writedowns are not on the agenda,” he said.

Mr Mangan pointed out that without the burden of debt repayments, Ireland could achieve a budget surplus by 2014.

Looking at the domestic economy, Mr Mangan said that despite the boom, the country is facing into a housing shortage. Houses were built in the wrong places, he claimed, adding that it is now almost impossible to get a family home in Dublin.

He also said some stabilisation has arrived in the housing market. “I think we are probably looking at a market that is bouncing along the bottom. Some months the house prices are up, some months they go down.

“The rental market has certainly turned, if people are not buying houses, they have to rent them.”


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