Labour Blog

FAQ on today's events

Posted on February 07, 2013 at 06:39 PM

Earlier we posted a Q&A on The end of the IBRC and what happens next. We've another Q&A post which explains everything that has happened this afternoon.

What is the latest breakthrough on Ireland’s debt?

Today, 7 February 2013, the Irish Government has agreed with the European Central Bank to replace the odious promissory note with a long-term, low interest (cheaper) loan (government bond).  

So what does the deal mean for Ireland?

The Taoiseach announced in the Dáil, following a discussion with cabinet and agreement of the ECB, that the promissory note arrangement (IOU) would be replaced with long-term, low interest government loan (bond).

€3.1bn due this March and every March will not be paid. The Irish government will have to borrow €20bn less over the next decade, €2bn less per year. Bonds are usually held over 34 years, instead of 7-8 years for promissory notes.

Step one of reaching a better deal on the promissory notes was implemented on 6 February 2013 with an all-night sitting of the Oireachtas, i.e. the IBRC, the dead bank, was wound down through emergency legislation.

The current Irish government paid the first instalment in 2011, but the 2012 payment was postponed by the government, pending renegotiation.

But what does this mean for the Irish Taxpayer and for Jobs and Growth?

Ireland will have to borrow €20bn less over the next 10 years, €2bn less per year. This will reduce by €1bn the gap between our revenue (income) and expenditure. In so doing, it will:

  • Ease the burden on taxpayers over time
  • Increase Ireland’s chances of regaining our economic independence by exiting the Troika in 2013
  • Increase our chances of securing further investment
  • Further investment and consumer confidence will boost jobs and growth
  • Increased growth will ease the debt burden even further

So what was the Emergency Legislation introduced on 6 February 2013?

The emergency legislation, the Irish Bank Resolution Corporation Bill 2013, was introduced on 6 February 2013 to liquidate IBRC.

This brings to an end the ‘dead bank’ IBRC, formerly Anglo-Irish Bank.

Assets belonging to IBRC have been transferred, under the legislation, to NAMA, the National Assets Management Agency.

A Special Liquidator has been appointed who will be responsible for addressing the employment needs of the former IBRC employees.

What has this got to do with the promissory notes?

The Government has been in on-going discussions with the European Central Bank to reach an agreement on reducing the severe burden imposed by the Promissory Notes, the IOUs, on Ireland’s taxpayers.

Under EU Treaties, the European Central Bank is not allowed to lend money directly to any government and must keep inflation low primarily.

This has led to intense, difficult negotiations as Ireland and the ECB seek to square the circle between ECB legalities and Ireland’s quest for debt sustainability and prompt exit from the Troika programme.

What are promissory notes?

Promissory notes are effectively IOUs, whereby the government promises, in writing, to pay a fixed sum of money to the payee (IBRC) in the future.

The concept of a promissory note for Anglo Irish Bank and Irish Nationwide Building Society was agreed in 2010, by the previous government and the ECB, when funding for these banks was not possible on the bond markets.

Why did the Government move so quickly to liquidate IBRC?

The ECB was, at the time, still considering a proposal from the Government for re-negotiation and part of that proposal was the liquidation of IBRC.

Unfortunately, when news leaked that IBRC was going to be liquidated, the risk of legal action, preventing Ireland from securing €12bn of assets, became too high for Ireland to wait for the final deal to be announced in tandem.

The government had to secure those assets, valued at €12bn, by liquidating IBRC before the markets resumed.

What is the immediate benefit?

The immediate benefit is that IBRC, (Anglo Irish Bank), a toxic bank has been permanently removed from the financial landscape.

What happens now?

Intense negotiations are continuing at European and international level on reducing the rest of Ireland’s debt.  

The June European Council 2012 commitment to break the link between sovereign (government/taxpayer) and private banking debt remains. This is an important foundation for future negotiations for an even better deal.

Ireland remains committed to the idea of a Banking Union and using the ESM, which the Irish people accepted by 60% in the Stability Treaty, to address the recapitalisation (funding) costs of our remaining banks.

What about the Staff in IBRC?

The Staff in IBRC are likely to be transferred to NAMA. While the emergency legislation was enacted in the public interest, the speed of its introduction was no doubt shocking news for those staff members in NAMA who will have to seek alternative employment eventually.

The Special Liquidator has been tasked with addressing staff concerns. 

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