We have become used to broken promises in this financial crisis. Remember Enda Kenny in December 2010 after the Greens had pulled the plug on the previous administration and political parties were on an election footing. Remember “Mr Kenny said there is no question of defaulting on sovereign debt or on senior bank bonds that are covered by the Guarantee but he believes that the taxpayer can save between €12-17bn by negotiating a sharing of losses with the unguaranteed senior bondholders”. Of course that promise became more nuanced in the subsequent manifesto a month later but no-one ever disabused us of the notion that this government would pursue to success a significant write-down on the remaining senior bondholder debt. And in June this year, Enda emerged from the all-nighter of the EU summit to tell us that some people had just found out he was not someone to be tangled with and that we could expect a deal on our bank bailout by October 2012 – that was the promise owned by Enda and his government, not Olli Rehn or Eamon Dunphy or the Tooth Fairy. Though it seems today that all three might be blamed for slippage in the date.
Fast forward 10 weeks and where are we with the negotiations? Seemingly no place. Presumably that’s why, a week ago, we had the leak of the letters from the ECB to Ireland’s finance minister in October/November 2010 – not a comprehensive leak, and we still haven’t see the precise language used. But can anyone be in any doubt that the decision to show the letters to the Irish Times was taken at the highest level. Two can play the extortion game it seems, and the ECB should understand that as surely as a nod is as good as a wink to a blind man, the letters will be leaked in full if the ECB doesn’t start to get serious in these negotiations.
Yesterday, courtesy of RTE’s This Week radio programme, we had an update on the negotiations from three individuals with knowledge of the matter – Governor of the Central Bank of Ireland, Patrick Honohan, from transport minister Leo Varadkar and from Sharon Bowles – Sharon is a British MEP but her relevance to Ireland is that she chairs the Committee on Economic and Monetary Affairs at the European Parliament and is accordingly at the heart of the efforts to resolve the crisis across Europe. What we learned was that Patrick Honohan is shifting the responsibility for negotiations emphatically into the court of the government, Patrick is assisting all he can but it’s the Government carrying this baby. Patrick thinks there will be a deal, but what and when? Who can tell, maybe after the Spanish deal. Leo thinks there will be a deal before the next promissory note payment is due in March (2013). Sharon thinks there will be a deal in November because certain (unspecified) arrangements come up for renewal then.
Because the negotiations haven’t been concluded, attempts to extract detail from the participants will inevitably be met with responses which mention not giving away our position. However at this stage, we should at least be able to get an answer to one question – who is the Santa Claus who will fund relief in Irish bank debt? From what I can see there is no Santa Claus and all that is being pursued is a sale of the Irish stake in Bank of Ireland and AIB, worth about €8bn according to the NTMA and for the gross interest rate on the promissory note to be reduced, something which is irrelevant as the interest rate affects what the Department of Finance (which we own) pays IBRC (which we also owns) and there is no net effect on the ultimate debt position of the State if the interest rate is reduced. If there is a Santa Claus which will compensate Ireland above and beyond the present value of our banks, then 10 weeks after the EU summit announcement, we should at least expect that Santa Claus to be identified.
On October 1st, exactly three weeks away, AIB which we 99.8%-own will pay €1bn to senior unsecured bondholders (bond reference XS0455308923). We have so far shoveled €20.7bn into the AIB group which of course merged with EBS last year. Without a Santa Claus, here is a representation of how we might be reduced to getting some relief on our debt.