Government wins EU backing to defer €3.06bn payment

THE GOVERNMENT has won agreement from European institutions to defer a cash payment of €3.06 billion which was due to be paid tomorrow on the bailout bill for Anglo Irish Bank and Irish Nationwide.

Minister for Finance Michael Noonan said the big benefit was the money would not have to be borrowed to pay this year’s instalment on the promissory notes, the State IOUs paying for the bailouts.

The payment will be covered by way of a long-term Government bond being issued to the former Anglo Irish Bank. It will in turn swap the bond for cash in a transaction with Bank of Ireland to settle tomorrow’s repayment.

Shareholders at Bank of Ireland, the only bank to avoid State control, must approve the deal in a vote not likely to take place until May, so the cash will temporarily come from the National Asset Management Agency.

Mr Noonan said this complex piece of financial engineering would help Ireland return to borrow in the financial markets. “The debt is being paid in a way that is less burdensome to the Irish State,” said the Minister.

The deal was akin to an ordinary citizen faced with repaying a large loan over five years having that debt transformed into a long-term mortgage.

The deal would not make it easier to formulate next year’s annual budget as it only concerned the repayment of debt, he added.

Mr Noonan also said more serious negotiations were ongoing over the remaining €27 billion debt due on the notes, which he hoped could be repaid over a much longer period.

The Government issued the IOUs in 2010 to cover €31 billion of the €35 billion cost of Anglo and Irish Nationwide over a long period, as it didn’t have cash to pay for the failed lenders.

A European Central Bank spokesman said it was “very important” for the State to honour the €3.06 billion payment and the remaining payments due on the notes as promised by the Government.

“As Ireland strives to regain market confidence, it is of utmost importance that the commitments of the Irish State are met in line with standing contracts and agreements,” the spokesman said.

Further talks on a long-term deal on the remaining repayments as part of a wider restructuring of the banks will continue between the Government and the troika of the EU Commission, the ECB and the International Monetary Fund.

Mr Noonan said the cash saved could be used to repay some of the €8 billion debt that falls due in January 2014 on the first State bond to be repaid after the EU-IMF bailout programme ends.

The deal will lead to a significant cash benefit to the State this year and improve the prospect of repaying its debts, he said. It will have a €90 million impact on the Government deficit in 2012, which was small relative to the €3.06 billion cash saving, he added.

Fianna Fáil finance spokesman Michael McGrath said the deal was a modest step in the right direction but would only be of real significance if it was part of a deal reducing the overall bank debt.

Sinn Féin’s Mary Lou McDonald said there should have been “a write-down of this unjust debt, not a deferral”. The Government had “bounced the debt down the road but still intend to pay it”.