Bank deal or no deal?

IT’s almost 18 months since the prospect of changing the terms of the promissory note was first raised by Finance Minister Michael Noonan.

Since then the Government has changed its tune many times, but there is still no deal in sight.

General election campaign, early 2011

In its pre-election banking strategy, entitled Credit Where Credit is Due, Fine Gael said if the EU did not agree with its policy plans to deal with the bank debt burden it would fly solo and proceed to burn senior bondholders: “Should some credible, combination of these options prove not [to] be available from Europe, the next government would — in order to restore its own credit-worthiness — be left with little choice but to unilaterally restructure... the private debts of those Irish banks in greatest need of recapitalisation.”

Labour was more blunt. In what became one of the most famous soundbites of the campaign, party leader Eamon Gilmore declared “it’s Frankfurt’s way or Labour’s way”, referring to the home of the ECB.

June 2011

Four months into his term as finance minister, Mr Noonan said during a visit to New York that the Government planned to impose substantial losses on senior bondholders in Anglo.

Early September 2011

President of the ECB, Jean-Claude Trichet, ruled out imposing losses. Noonan responded by declaring this is no longer his primary concern and for the first time raises the prospect of restructuring the promissory notes.

“I have not raised the issue in specific terms with any of the authorities yet, but I have raised it in general terms with the troika — pointing out the difficulty of meeting the €3bn payment every year and what it does to the fiscal figures,” he told the Oireachtas Finance Committee.

Sept 17, 2011

Mr Noonan travelled to Poland and tries to convince Mr Trichet, and Economics Commissioner Olli Rehn to change the terms of the promissory notes by lowering the interest rate or lengthening the repayment period.

Speaking after that meeting, he said the ECB was “pretty non-committal” on the issue but had “agreed that we could access some of [its] technical people if we were trying to design something”.

November 2011

Mr Noonan tells the Dáil on Nov 2 that “technical discussions between officials are underway,” on the promissory note. “For these reasons, I have decided not to take unilateral action on burden-sharing.”

On Nov 22, Richard Boyd Barrett of the United Left Alliance asked the Taoiseach in the Dáil if the promissory note issue had been raised with German Chancellor Angela Merkel at a recent EU meeting. Taoiseach Enda Kenny simply responded: “Yes.”

January 2012

Mr Kenny tells the Dáil that serious technical discussions were under way at EU and IMF level: “I will not go beyond that except to say that there is an intense level of discussion about the negotiation of an alternative to the promissory notes,” he said.

Social Protection Minister Joan Burton links a deal on the promissory notes with Ireland’s ratification of the EU fiscal compact treaty, saying a reduction in the cost of the notes would help secure a Yes vote in the referendum.

February 2012

Government’s pleas to Europe to allow a deal gain some momentum. Communications Minister Pat Rabbitte tells the Wall Street Journal that a deal on the notes would be struck in the next few weeks. Transport Minister Leo Varadkar uses a trip to Paris to insist that Europe had an obligation to do a deal on the Anglo promissory notes in recognition of having stood in the breach when the global financial crisis struck.

March 2012

Any hopes of securing a deal appeared to be dashed when, on Mar 14, Mr Rehn said in unambiguous terms that the Government was obliged to meet all its debts.

“I actually wonder why this has to be asked at all because the principle in the EU and in the long European legal and historical tradition is, in Latin pacta sunt servanda — respect your commitments and obligations,” he said.

Days later, the ECB allowed Mr Noonan to defer a €3bn cash payment to the former Anglo. The State was still on the hook though as the payment was merely deferred and the promissory note scheme remained in place.

May 2012

As concern grows for the Spanish economy, the EU Commission supports calls to allow the permanent rescue fund — the ESM — to provide direct bailouts to troubled banks.

The Irish referendum allowing the establishment of the ESM is passed and the Taoiseach says it’s a message from the Irish people that they want the debt question settled.

June 2012

EU leaders agree to give the ESM powers to directly recapitalise banks. After a tense summit meeting, Ireland secures a pledge similar cases will be treated equally in what Mr Gilmore described as a “game changer.”

The focus shifted away from the promissory note issue and firmly on an ESM deal.

September 2012

Government hopes of using the ESM to retroactively bail out banks suffers a major setback when the finance ministers of Germany, Finland, and the Netherlands issue a joint statement saying the fund would only be used for future bank problems.

Mr Noonan, in a speech to the Construction Industry Federation, said he “won’t take much notice” of the statement. He said he would like to see a deal on reducing the bank debt burden before December’s budget.

“I would be hoping for October or November,” he said. “It certainly would suit my forward planning if we had a fairly definite indication of what the result might be before the budget.”

As hope of an ESM bailout dwindle, the Government attempted to re-focus on the promissory note issue, with Mr Noonan claiming progress was being made in technical talks with the ECB.

There are reports that the Government is seeking a 40-year bond to refinance the bailout of Anglo Irish Bank, allowing it to significantly reduce its annual repayment.

Early October 2012

Mr Kenny rejects claims in the Dáil on Oct 9 that a bank debt deal is disappearing, saying it was the subject of intense and ongoing discussions and negotiations .

He said he had made it perfectly clear to EU president Herman Van Rompuy that the decision to break the link between sovereign and bank debt in Ireland’s case is not about some problem that will arise for Ireland in the future. “I said the problem is here now, having been caused by issues of the past”

He also said some progress had been made on the promissory note payment: “Our clear objective and wish is that this might be concluded before the end of the year,” he said.

Oct 19, 2012

Ms Merkel delivered a blow to any hopes of easing bank debt through the ESM, surprising everyone with her categorical statement after the summit that ruled out the EU’s rescue fund dealing with old bank debt.

Oct 20, 2012

After a phone call with the Taoiseach, Merkel appeared to soften her stance. A joint statement between the two said Ireland was “unique” and should be considered a “special case”.

However, it did not give any firm commitment or clear indication that a deal would be reached.

Nov 22, 2012.

At the latest EU summit Mr Kenny says he hopes to get agreement in principle on getting EU aid for the surviving banks early in the new year.

Dec 9 2012

The promissory note issue was centre stage again after Mr Rabbitte, told RTÉ’s The Week in Politics that the Government will not pay the instalment of €3.1bn installment in March.

“[The Government] didn’t pay the promissory note this year and as far as I’m concerned we re not going to pay it next year. It s as simple as that,” he said.

Jan 10

The Taoiseach said a deal on the promissory notes is required for Ireland to successfully exit the EU-IMF bailout programme this year.

He said no other country had been burdened with similar levels of bank debt, and this fact had been recognised by the German chancellor and the French president.

“The solidarity that we all speak of is a two-way street, and for Ireland to exit its programme successfully we do need a conclusion to the negotiations on the promissory notes on the one hand and the conclusion, eventually, on the discussions on a banking deal arising from the decision of the 29th of June on breaking the link between sovereign and bank debt.”

Jan 13

Mr Kenny again insisted he expects to secure a deal with the ECB that would result in the country not having to make the €3.1bn payment in March.

“I am confident that we will secure a deal before the end of March, which is the payment date for the next €3bn. I don’t contemplate not getting a deal here,” he said. He said failure to reach a deal with the ECB would make it very difficult for Ireland to exit the bailout deal at the end of this year as hoped.

Mr Kenny added that the negotiations had taken so long because they were “very complex and highly technical”.

Jan 27

Following weekend reports on Reuters that the ECB rejected Ireland’s preferred approach in dealing with the issue, Mr Varadkar said issues had arisen in the negotiations. “There is agreement on a lot of areas but there are a number of issues outstanding and some of those issues are very difficult. The general council of the ECB will meet again in two week’s time,” he said.

“The information that I have is that there was no rejection. There was no breakdown. There are issues that need to be changed and issues that need to be agreed on. We have agreement on most of it, there are still some outstanding issues that are very difficult and we need to work on them, but we are still hopeful of getting a resolution.”

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