Cabinet to get watered down debt deal

The Government is in line for a watered down deal on the €30bn Anglo promissory note after ECB sources suggested any agreement will be limited and not yield any savings to the State.

The Coalition had effectively staked its reputation on striking a deal ahead of the €3.1bn repayment due at the end of March.

However, it has suffered a major setback after the governing council of the ECB rejected the proposal by the Department of Finance to wrap these payments up into a 30 to 40-year bond.

The ECB source said this type of deal was never possible because it contravenes the bank’s strict policy against monetary financing for member states.

While a deal may be reached before the next payment is due, the source said it is “unlikely to satisfy the Irish Government”, adding that “the next few weeks will be messy”.

The ECB is legally limited in what it can offer. One possibility is that the Government will still have to pay back the full promissory note within the current timeframe, by 2023.

However, it could be rearranged so that much smaller repayments are scheduled for the next few years, with the bulk of the total liability moved closer to the end of the next decade.

The ECB and the Department of Finance both declined to comment.

Lorcan Roche Kelly, chief European strategist with US hedge fund Trend Macro, said it may be in the Government’s interest to get a second EU/IMF bailout to deal exclusively with the bank debt.

“There is a possibility that the Government may be able to get the [European Stability Mechanism] to give €30bn to the ECB to pay off the promissory note,” said Mr Kelly. “This money would then be rolled into a long-dated bond that the Government would eventually have to pay back.”

The Government is scheduled to exit the bailout at the end of this year. Securing a deal on the bank debt could determine whether the State can access market funding at sustainable interest rates over the medium term.

Taoiseach Enda Kenny previously claimed a deal on the promissory note was needed if Ireland was to exit the bailout.

The outcome of the talks will have major consequences for the Government after Mr Kenny and a number of ministers signalled confidence in a deal being struck.

Mr Kenny said yesterday: “The Government will continue to negotiate now on the technicalities and complexities of what’s involved here and we are confident and hopeful that we can have a conclusion by the next repayment date.”

Fianna Fáil finance spokesman Michael McGrath said the Government has suffered a “setback”, as the ECB “has not accepted or possibly rejected a Government proposal that has been put on the table”.

He said a good deal on the promissory note could “take the edge” off future budget adjustments.

“This is the single most significant issue as we seek to exit the current programme of assistance with the troika and as we seek to put our public finances on a sustainable footing,” he said.

Sinn Féin finance spokesman Pearse Doherty said it now appears a deal is “as far away as ever”.