The Government has agreed a deal to avoid forking out €3.1bn in cash to pay down Anglo-related debt this weekend.
Instead of handing over cash, the Coalition will issue a long-term bond — essentially an IOU — that will not be repayable until 2025.
The Government will have to pay interest on the bond — a move that will have a €90m impact on the exchequer this year — but said this was a far better outcome than the immediate outlay of €3.06bn.
Tomorrow is the deadline for the repayment under the promissory note system funding the bailout of Anglo and Irish Nationwide, now merged as the Irish Bank Resolution Corp (IBRC).
That bailout will cost €47.4bn, including interest totalling €16.8bn, over a 20-year period unless the troika of EU, ECB, and IMF agrees to a cheaper deal.
The €3.06bn due tomorrow represented the portion of the €47.4bn meant for repayment this year.
Government negotiations with the troika are ongoing in a bid to replace the promissory note system with a cheaper alternative.
Finance Minister Michael Noonan indicated that the use of a bond as repayment was a once-off solution that would give the Government more breathing space in those negotiations.
However, in a cautiously optimistic note, he said the troika’s agreement on the bond could be seen as a signal the promissory note system was “not set in stone”.
He warned that the talks would take time to conclude and that, “if we are successful, it will be in the medium term rather than immediately”.
He also stressed that the effective saving of €3.06bn would not mean a reversal of tax hikes or spending cuts already introduced or a reduction in future budget measures.
The State still had a gap between spending and income of €15.8bn and the Government would have to continue closing that gap, he said.
Instead, the €3.06bn — money available from the troika under the bailout — will be held in reserve in case needed in the future.
Rather than obtaining cash from the Government, IBRC will obtain cash for the bond from the ECB in a convoluted process involving Bank of Ireland as a middleman. This will require the approval of Bank of Ireland shareholders, which is expected to be obtained.
Fianna Fáil finance spokesman Michael McGrath described the bond move as “a modest step in the right direction”, but said the Government would have to be more ambitious in its aims on the overall deal.
“This interim arrangement must be used as a catalyst to secure an overall deal that actually reduces the burden of banking debt facing the State.”
Sinn Féin said the bond tactic proved the Government’s talks had “not been a success” as there had been no writedown of the “unjust debt”, just a deferral.
“They have bounced the debt down the road but still intend to pay it,” said Sinn Féin deputy leader Mary Lou McDonald.
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