TWO SENIOR Ministers have raised expectations of substantial reductions in interest on the €47 billion bailout deal for Anglo Irish Bank.
Minister for Communications Pat Rabbitte and Minister for Transport Leo Varadkar yesterday suggested that a renegotiation of the punitive 8.2 interest rate being paid on the €30.6 billion promissory note used to recapitalise Anglo Irish Bank will more than compensate for the €700 million paid out to unsecured bondholders of the failed bank.
The Coalition funded the €30.6 billion bank recapitalisation through a promissory note, or IOU from the European Central Bank, on which the State will pay €17 billion in interest costs, unless rates are renegotiated.
Opposition parties have claimed that the Government is using these negotiations, with absolutely no guarantee of success, to deflect attention from widespread criticism of last week’s €700 million payment to bondholders.
Their comments follow confirmation from Minister for Finance Michael Noonan that discussions are under way between Government officials, the ECB and the European Commission.
Mr Noonan said on Friday he was seeking a “redesign” of the promissory note to ease the 8.2 per cent rate that will have to be paid over 10 years. A senior Coalition source expressed optimism a better deal can be negotiated to alleviate a burden which will cost €3.2 billion a year from 2013 – or half the overall adjustment for that year.
However, with the Greek crisis taking priority, negotiations have been conducted at what was described as a “background level”.
The Government is hoping to secure concessions through a reduction in the rate of interest or extension of the term of repayment well beyond its current 10-year period. The strategy is dependent on the euro zone’s rescue fund, the European Financial Stability Facility, increasing its “firepower” from €440 billion to more than €1 trillion.
“We will get something but don’t know yet how much and when. The Greeks keep pushing us down the agenda,” said the source.
Speaking on RTÉ radio, Mr Rabbitte said giving the go-ahead for the €700 million payment had been an “excruciatingly difficult decision” for the Coalition.
“It was a requirement of the European Central Bank. The Minister for Finance did his best to get out from under that,” he said. “The ECB was trenchant. It is providing the blood transfusion that is maintaining our economy.”
He said the Republic now expected a quid pro quo from Europe in the short to medium term.
“What would have been gained from a haircut in this particular bond would have been negligible in the context of ECB funding and in terms of our expectation of what we can achieve in our ongoing negotiations.”
He continued: “There’s €30.6 billion committed to promissory notes. That’s about €3.2 billion per annum for 10 years. That’s a horrific burden on top of the fiscal adjustment . . . With the burden of private debt imposed on us, it is not unreasonable to expect that there will be an alleviation coming elsewhere.”
Mr Varadkar said he was confident the Government could achieve a renegotiation.
“It would knock a whole year off austerity, which really would be great,” he told a conference in Limerick.
Mr Varadkar claimed that the last government delayed the payment of interest on the promissory notes, leaving this Government with punitive interest rates.
Minister of State at the Department of Finance Brian Hayes said it was too early to say what kind of reduction the State could achieve.
He said it would depend on the interest rates negotiated and the term of maturity of the notes.
“At present the term is 10 years at over 8 per cent. The realpolitik is that we are staying under the radar given the catastrophe in Greece.
“There will be a very long detailed discussion on this. Obviously you are in a better position when you are seen to be meeting your targets,” he said.
