Deal on Anglo notes nearing completion

A deal on the Anglo Irish Bank promissory note could be reached as early as mid-May.

RTÉ News reported sources saying that the European Financial Stability Facility is the favoured option to replace the promissory notes on more favourable terms.

“The broad idea is to use the EFSF to replace the promissory notes, to try to use it to further strengthen the Irish banking sector so that Irish banks can regain market funding under better conditions,” an EU source was quoted as saying.

The plan would involve the EFSF issuing a long maturity bond, or bonds, worth €28bn. These would come with low interest rates and replace the State’s obligation to pay €3.1bn annually over a 10-year period.

This would be seen as an extension of the current bailout deal, would not amount to a second bailout, and would not impact upon Ireland’s debt levels.

The deal could be reached before the referendum on the fiscal compact, which will take place on May 31.

Meanwhile, ministers yesterday shielded behind better-than-expected tax returns as experts warned that extra spending cuts may be needed due to weak growth.

Alarm bells were sounded by budgetary watchdog, the Irish Fiscal Advisory Council, which was created to keep an eye on Government projections. The council questioned whether growth estimates of 1.3% could be met, as many forecasters are predicting only half of that level will be achieved. Such poor growth could spark the need for the Government’s targets for taxes and cuts to increase by €400m to €3.9bn this year, and soar €2.8bn to €15.6bn in the budgets down to 2015, the fiscal council stated.

The council, which comprises of five academic economists, warned conditions had deteriorated since budget growth forecasts were drawn up and “the latest economic data and more recent external growth projections suggest that the Department of Finance’s real GDP forecast for 2012 is now on the high side”.

However, the council said austerity was working.

Michael Noonan, the finance minister, said the latest exchequer figures were proof that the economic situation was stabilising.

“The figures are pretty good. We are about €300m ahead of where we expected to be,” he said, stressing the 2% Vat hike had brought in some €100m extra.

Department of Finance figures showed the deficit was €2.8bn lower at the end of March compared with the same period last year — due to the move to kick the Anglo promissory note payments down the track.

Tax revenues for the first three months of the year were more than €1.2bn ahead of the same period last year. Despite some one-off boosts, officials said the underlying increase in tax take was about 10% ahead of expectations.