Honohan to go before committee over Anglo notes

Central Bank governor Patrick Honohan is to be forced before the Dáil finance committee to answer questions on the Anglo promissory note controversy following a humiliating defeat for the Government.

Farcical scenes in the Dáil capped 48 hours of embarrassment for Enda Kenny over the €3.1bn Anglo payback due within days.

The committee, meeting in private, was discussing inviting the governor to attend but did not agree a date when that should happen. Fine Gael backbencher Peter Mathews then insisted Mr Honohan should be instructed to attend the committee by Friday week and proposed a motion stating that.

Colleagues told him this was against government wishes and if he voted for his own motion, he would lose the Fine Gael whip.

Mr Mathews then duly voted against, but party colleagues became concerned that not all Fine Gael members had turned up at the committee from a general parliamentary party meeting taking placed at the same time, and they then left the room to look for them.

They then found themselves locked out of the committee room and opposition members seized the chance to force a vote on Mr Honohan attending, which they won 11 votes to nine.

Meanwhile, work is progressing well but there are challenges to be resolved before Ireland can cut the cost of the €31bn promissory note, sources said as the European Commission tried to deflate the furore caused by Olli Rehn saying Ireland must pay its debts.

The commission’s two-paragraph statement said that for the country to return to borrowing from the markets, “it is of utmost importance that Ireland is seen to honour its financial obligation”. A source said this is what Mr Rehn meant to say when he announced in Latin, “pacta sunt servanda — respect your commitments”, at the end of a two-day finance ministers’ meeting in Brussels this week.

The statement underlined that the €31bn promissory notes were part of Ireland’s debt and were “an element” in negotiations between Irish, EU, and IMF officials.

Sources said work was progressing well but that there was agreement it would not be discussed in public until a comprehensive solution was found and agreed at political level.

What was described as “very difficult technical challenges” include where any loan would come from to substitute for the IOUs.

The Government is understood to favour the money being borrowed under the ESM rescue fund, which comes into force in July, as the money would not then be added to the official debt figures. Others believe the money should come from the EFSF, the fund from which the bailout comes. However, under the rules attached to the EFSF, the loan would be added to the debt, which is already forecast to rise to 121% of GDP next year.

As well as potentially making the debt look unsustainable, more would have to be paid off it each year under the terms of the new economic governance rules and the fiscal treaty.

Another problem is the IOUs the Government gave to the Central Bank have since been used to get emergency liquidity for the domestic banks to allow them to continue operating.

The question is how to replace the IOUs as collateral with the ECB but keep this €40bn in emergency liquidity until the banks have recovered sufficiently.

The ECB will have to be satisfied with the solution proposed, as will the eurozone countries that are part of the ECB and the bailout funds expected to provide the loan to replace the €31bn promissory notes.

However the negotiations have not progressed that far yet and could take several more months.

The commission said the Government and the troika are “exploring avenues to further strengthen the domestic banking sector such that it can better provide credit to the economy and support the recovery”.