Minister Pat Rabbitte says Government will not pay €3.1bn promissory note for former

GCU Flexible Demeanour

Communications Minister Pat Rabbitte has said that the country will not pay the €3.1bn promissory note for former Anglo Irish Bank when it is due in March.


He told RTÉ's The Week in Politics that the Government can not pay this "IOU" entered into by the last Government after the collapse of Anglo Irish Bank.


He said the European Central Bank was a difficult institution to "bring around" to stamping the deal Ireland needs on the promissory note.


But Minister Rabbitte said he believes it will happen before the payment is due next March.

It's one of those stories that might just turn out to be a distraction, but looks like one that has to be watched. IIRC, last time out Ireland had to pay despite similar noises being made. I just wonder if the Government can handle a second humiliation on this.

Duiske

GCU Flexible Demeanour wrote: »

It's one of those stories that might just turn out to be a distraction, but looks like one that has to be watched. IIRC, last time out Ireland had to pay despite similar noises being made. I just wonder if the Government can handle a second humiliation on this.

I wonder if it's a ploy to placate the Labour backs. Yes, technically Ireland did pay the installment last year, but through a loan from Bank of Ireland. They just kicked the issue further down the road, and that money still has to be repaid.

Sponge Bob

This is internal labour politics Duiske, I agree. I wonder if Rabbitte is making a move for the party leadership. The March 2012 note is due in July 2013 or so, and we pay interest on it to BoI every month.

Dob74

GCU Flexible Demeanour wrote: »

It's one of those stories that might just turn out to be a distraction, but looks like one that has to be watched. IIRC, last time out Ireland had to pay despite similar noises being made. I just wonder if the Government can handle a second humiliation on this.

Was at a rally in cork yesterday, there was a thousand at it. No media coverage of course but the gov sang a different tune on the c.roke park agreement before the protest last week. The more we protest the more this weak gov will cave in. Wasn't a believer in protests but I am now.

Dirk Gently

GCU Flexible Demeanour wrote: »

I just wonder if the Government can handle a second humiliation on this.

Well Pat Rabbitte believes we didn't pay it last year too so I wouldn't hold out much hope if that's his idea of not paying.

Side Show Bob

It's clear that labour do what Fine Geal tell them to do, Fine Geal do what the Germans tell them them to do. There are no choices!

bbam

I noticed thismorning that it has been changed on the news that he said that we "may" not pay it... Backtracking already ?? just when we thought they were getting a backbone.. :rolleyes:

Sponge Bob

The markets are very jittery today, not because of Rabbitte but because Mario Monti has announced he will stop down as Berlusconi gears up for (he hopes) re election as Prime Minister in February.

Our yield numbers, see the 1 month figure.

http://www.bloomberg.com/quote/GIGB3YR:IND

GCU Flexible Demeanour

Dirk Gently wrote: »

Well Pat Rabbitte believes we didn't pay it last year too so I wouldn't hold out much hope if that's his idea of not paying.

That puts a whole different perspective on his statement!

So it's like that bit in "1984", when the Party solemnly announce that the chocolate ration is increasing from thirty grams a week to twenty grams a week.

Uncle Ben

This link illustrates how it was paid last year. Although the Govt. will probably deny it ever happened. So hard to believe this shower anymore.

http://www.bondwatchireland.blogspot.ie

michael999999

I dont believe a word of it!

noodler

Dirk Gently wrote: »

Well Pat Rabbitte believes we didn't pay it last year too so I wouldn't hold out much hope if that's his idea of not paying.

You are dead right in a sense.

Bear in mind thought when it comes to the 31bn (now 25bn) prom note, the Government had consistently said they want to delay or spread the paymwents out rather than seek relief on the amount.

The 31bn will be paid - the timescale is the only thing at question.

As a result, we didn;t have to give anybody 3bn in cash last year and instead now have a Government Bond that matures in 2025.

Although as I understand it, IBRC has to buy the bond back from BoI in March so IBRC actually has a 6bn+ bill coming up this year unless something is sorted.

HellFireClub

The first bit of sense that I have heard coming out of any person in our government in years, it would be nice to think that Labour has finally found the gumption to say, "We have done our bit in terms of the conditions imposed on us and I hope that Europe will reciprocate"... I wouldn't go getting my hopes up though, talking the talk is one thing, having the cuts to walk the walk, is a different thing entirely...

http://www.independent.ie/national-news/rabbitte-tells-europe-thats-all-folks-but-enda-tries-the-diplomatic-road-3323235.html

frankosw

Havnt we heard all this before?

I'll believe it when i see it..this is only an attempt to deflect from the current unpopularity of the Govt.

Chips Lovell

I might be wrong, but I took Rabitte's comments to mean not that they'd abandon the promissory notes but that they'd restructure the deal.

Scofflaw

noodler wrote: »

You are dead right in a sense.

Bear in mind thought when it comes to the 31bn (now 25bn) prom note, the Government had consistently said they want to delay or spread the paymwents out rather than seek relief on the amount.

The 31bn will be paid - the timescale is the only thing at question.

As a result, we didn;t have to give anybody 3bn in cash last year and instead now have a Government Bond that matures in 2025.

Although as I understand it, IBRC has to buy the bond back from BoI in March so IBRC actually has a 6bn+ bill coming up this year unless something is sorted.

It makes a sort of sense. The promissory note debt is effectively national debt (and is on our national debt), so it's being treated as national debt - borrowed and rolled over.

cordially,
Scofflaw

noodler

Scofflaw wrote: »

It makes a sort of sense. The promissory note debt is effectively national debt (and is on our national debt), so it's being treated as national debt - borrowed and rolled over.

cordially,
Scofflaw

I am not sure what point you are making or why you quoted me!

To roll over the 3bn payment every year as we did last year requires that we have sombody willing to purchase seriously long term Government bonds at reasonable rates - this is something we have not done since 2010 (and to be honest even a ten year bond might be too short in this scenario).

We got away with it this year because we used BoI money (and temporarily NAMA money). To do the same trick this year we would need investors.

Also, and this is not discussed nearly enough in the media, the question of the promissory note interest as things stand is murky. The Government haven't made an announcement about it but many economists (esp K.Whelan in his extensive presentations on the issue) argue the majoirty of the interest (i.e. the 47bn minus the 31bn = 16bn) will (or should) return to the Government each year as IBRC passes it on to the CBI and the CBI passes it on to the Government.

Murky as I said but once the prom notes are rolled over into Government bonds then the interest sure as hell leaves the State system.

If the cyclical nature of the prom note interest is true then we have to way up the cost of more manageable annual payments (with Gov bonds) compared with being able to keep the interest (Prom notes).

Scofflaw

noodler wrote: »

I am not sure what point you are making or why you quoted me!

The reference is to your "delay or spread the payments out", and the point is their method of doing so is to treat the promissory notes as we do the national debt.

noodler wrote: »

To roll over the 3bn payment every year as we did last year requires that we have sombody willing to purchase seriously long term Government bonds at reasonable rates - this is something we have not done since 2010 (and to be honest even a ten year bond might be too short in this scenario).

We got away with it this year because we used BoI money (and temporarily NAMA money). To do the same trick this year we would need investors.

Also, and this is not discussed nearly enough in the media, the question of the promissory note interest as things stand is murky. The Government haven't made an announcement about it but many economists (esp K.Whelan in his extensive presentations on the issue) argue the majoirty of the interest (i.e. the 47bn minus the 31bn = 16bn) will (or should) return to the Government each year as IBRC passes it on to the CBI and the CBI passes it on to the Government.

Murky as I said but once the prom notes are rolled over into Government bonds then the interest sure as hell leaves the State system.

If the cyclical nature of the prom note interest is true then we have to way up the cost of more manageable annual payments (with Gov bonds) compared with being able to keep the interest (Prom notes).

The circular nature of the PM interest is true, and the costs of interest-bearing bonds need to be weighed against the costs of the capital repayment of the notes. Taking Karl Whelan's PM repayment table as a basis, the comparison looks something like this:

|PN Interest|Repayment|Capital Repayment|Capital Remaining|Borrowings|Bond Interest
31/03/11|0.6|3.1|2.5|28.1|2.5|0.09
31/03/12|‐|3.1|3.1|25|5.6|0.19
31/03/13|0.5|3.1|2.6|22.4|8.2|0.28
31/03/14|1.8|3.1|1.2|21.2|9.4|0.32
31/03/15|1.7|3.1|1.3|19.9|10.7|0.37
31/03/16|1.7|3.1|1.4|18.5|12.1|0.42
31/03/17|1.5|3.1|1.5|17|13.6|0.47
31/03/18|1.4|3.1|1.6|15.4|15.2|0.52
31/03/19|1.3|3.1|1.7|13.7|16.9|0.58
31/03/20|1.2|3.1|1.9|11.8|18.8|0.65
31/03/21|1.1|3.1|2|9.8|20.8|0.72
31/03/22|0.9|3.1|2.2|7.6|23|0.79
31/03/23|0.7|3.1|2.3|5.3|25.3|0.87
31/03/24|0.6|2.1|1.5|3.8|26.8|0.92
31/03/25|0.4|0.9|0.5|3.3|27.3|0.94
31/03/26|0.4|0.9|0.5|2.8|27.8|0.96
31/03/27|0.3|0.9|0.6|2.2|28.4|0.98
31/03/28|0.3|0.9|0.6|1.6|29|1
31/03/29|0.2|0.9|0.7|0.9|29.7|1.02
31/03/30|0.1|0.9|0.8|0.1|30.5|1.05
31/03/31|0|0.1|0|0|30.5|1.05
TOTALS|16.8|47.9|30.6|||14.17


So the repayment of the capital is what we're really looking at, given that the PN interest (2nd column) is circular - thus, I've only given the amounts borrowed as government bonds as equal to the capital element of the PNs. The excess borrowed as a bond to meet the interest on the PNs flows back into government coffers, so can be treated as general government borrowing. I've taken as the bond interest rate the current rate for 5-year Irish govt bonds, which is 3.439%.

The cost, then, of borrowing to meet the PN repayments is €14.17bn as opposed to €30.6bn to simply pay them down, taken over the same period. Inflation-adjusted, and assuming 2% inflation, the comparable figures are €26.44bn and €11.08bn.

So if the government can pull this off, there are considerable savings to be made in the currently applicable PN timeframe.

cordially,
Scofflaw

noodler

The table is from the Government's parliamentary questions reply.

Also, I have great suspicions about the interest being cyclical for the simple reason that the Government seems to have no problem with letting SF etc say that the bailout of IBRC will cost 47bn.

The 47bn figure has been known for almost two years now and not one Government member has ever said "yeah but we'll get the interest back so it'll be a net 31bn".

It seems like a really strange punch to pull when you are being criticised from all corners.

Regardless, I would personally prefer a longer arrangement with our own CBI rather than getting into this issuing 3bn worth of bonds business every year in order to ensure the interest does stay. Obviously this is incredibly difficult to pull off given the ECB's position on ELA and other forms of emergency lending to banks.

I also think there is a milder moral argument for contining to illustrate our debt in official figures as

1) Government Bonds
2) Promissory Notes
3) Retail Savings

etc etc

Rather than transfering all the Anglo money into ironclad Government bonds - it'll also give us a stronger negotiating position in the future as well (again imo) because it wouldn't be default on Government Bonds but on "odious IBRC PNs" or some other such inflamatory language.

antoobrien

noodler wrote: »

The table is from the Government's parliamentary questions reply.

Also, I have great suspicions about the interest being cyclical for the simple reason that the Government seems to have no problem with letting SF etc say that the bailout of IBRC will cost 47bn.

The 47bn figure has been known for almost two years now and not one Government member has ever said "yeah but we'll get the interest back so it'll be a net 31bn".

It seems like a really strange punch to pull when you are being criticised from all corners.

The whole government handling of the publicity surrounding banks & bailout has been strange e.g. from examining the exchequer statements we have only paid (i.e. borrowed) about 17bn from the exchequer, the rest is either outstnaindg (the PNs) or has been invested from NPRF.

Yet the press regularly harps on about the 64bn cost as if we have borrowed it all now, which causes confusion and leads people to think that there's still 64bn to borrow (which I have been told a few times by people that should know better).

The mechanics of it all are a bit strange and hard to explain without all the appropriate documents to hand (and an internet connection) so I'd say that there are more than a few TDs on both sides that don't really understand what's going on.

Scofflaw

noodler wrote: »

The table is from the Government's parliamentary questions reply.

No, it's from Karl Whelan's paper, although the two are the same, I'm sure.

noodler wrote: »

Also, I have great suspicions about the interest being cyclical for the simple reason that the Government seems to have no problem with letting SF etc say that the bailout of IBRC will cost 47bn.

The 47bn figure has been known for almost two years now and not one Government member has ever said "yeah but we'll get the interest back so it'll be a net 31bn".

It seems like a really strange punch to pull when you are being criticised from all corners.

I wouldn't claim to understand government communications policy - but on the other hand, I wouldn't base my analysis of the promissory notes on it either.

noodler wrote: »

Regardless, I would personally prefer a longer arrangement with our own CBI rather than getting into this issuing 3bn worth of bonds business every year in order to ensure the interest does stay. Obviously this is incredibly difficult to pull off given the ECB's position on ELA and other forms of emergency lending to banks.

I also think there is a milder moral argument for contining to illustrate our debt in official figures as

1) Government Bonds
2) Promissory Notes
3) Retail Savings

etc etc

Rather than transfering all the Anglo money into ironclad Government bonds - it'll also give us a stronger negotiating position in the future as well (again imo) because it wouldn't be default on Government Bonds but on "odious IBRC PNs" or some other such inflamatory language.

I don't think there's any particular value in that myself, because the whole "odious debt" argument is frankly meaningless. The debt is government debt, issued legally by a legal government - it can't legally be repudiated simply because the original stroke (Lenihan's "cheapest bank bailout") failed to come off.

Anyway, here's Karl Whelan on the advantages of a bond over the PNs: http://www.forbes.com/sites/karlwhelan/2012/11/21/why-ireland-would-benefit-replacing-the-promissory-notes-with-a-long-term-bond/

cordially,
Scofflaw

Scofflaw

antoobrien wrote: »

The whole government handling of the publicity surrounding banks & bailout has been strange e.g. from examining the exchequer statements we have only paid (i.e. borrowed) about 17bn from the exchequer, the rest is either outstnaindg (the PNs) or has been invested from NPRF.

Yet the press regularly harps on about the 64bn cost as if we have borrowed it all now, which causes confusion and leads people to think that there's still 64bn to borrow (which I have been told a few times by people that should know better).

The mechanics of it all are a bit strange and hard to explain without all the appropriate documents to hand (and an internet connection) so I'd say that there are more than a few TDs on both sides that don't really understand what's going on.

While it's nice to think that our TDs not only understand what's happening but spend time thinking about it, all the evidence of the past years points firmly in the other direction.

cordially,
Scofflaw

antoobrien

Scofflaw wrote: »

Anyway, here's Karl Whelan on the advantages of a bond over the PNs: http://www.forbes.com/sites/karlwhelan/2012/11/21/why-ireland-would-benefit-replacing-the-promissory-notes-with-a-long-term-bond/

Interesting article that - I wonder how many people realise, as Karl states, that the PNs are funding money that has been borrowed off the CB. Apart from being illegal, writing it off (I don't think that's what rabbite is suggesting) will reduce the finance available for the CB to support the other banks.

Scofflaw

antoobrien wrote: »

Interesting article that - I wonder how many people realise, as Karl states, that the PNs are funding money that has been borrowed off the CB. Apart from being illegal, writing it off (I don't think that's what rabbite is suggesting) will reduce the finance available for the CB to support the other banks.

As far as I can tell, most people think the PNs are money that's been borrowed from the ECB as part of the troika funding. Possibly that explains the government's apparent reluctance to get involved in any explanation of them whatsoever.

cordially,
Scofflaw

noodler

antoobrien wrote: »

Yet the press regularly harps on about the 64bn cost as if we have borrowed it all now, which causes confusion and leads people to think that there's still 64bn to borrow (which I have been told a few times by people that should know better).

No, they haven't borrowed all the PNs yet but we have included it in out General Government Debt though.

Scofflaw wrote: »

No, it's from Karl Whelan's paper, although the two are the same, I'm sure.

Eh, well yeah. He copied and pasted a parliamentary reply into his paper! So the source is the Government, as I said.

Scofflaw wrote: »

I wouldn't claim to understand government communications policy - but on the other hand, I wouldn't base my analysis of the promissory notes on it either.

Of course not, but you are being facetious.

We are talking about a very specific element of the promissory notes - interest. KW has written two outstanding presentations on the issue, I sat through one at Croke Park last January, but he is not currently in the one in charge of the Government, the CBI or IBRC and so cannot be certain of several of the assumptions made.

What happens if IBRC has incorporated some of the 17bn into their costings over the next ten years?

To rule out the completely that possibility that all the interest will not be returned on the basis of one paper is naive enough.

Scofflaw wrote: »

I don't think there's any particular value in that myself, because the whole "odious debt" argument is frankly meaningless. The debt is government debt, issued legally by a legal government - it can't legally be repudiated simply because the original stroke (Lenihan's "cheapest bank bailout") failed to come off.

If there was a market reaction to any such default - I wager there would be a marked difference in reaction to us defaulting on PNs to our own CBI compared to if we defaulted on Government Bonds to private international investors.

Scofflaw wrote: »

Anyway, here's Karl Whelan on the advantages of a bond over the PNs: http://www.forbes.com/sites/karlwhelan/2012/11/21/why-ireland-would-benefit-replacing-the-promissory-notes-with-a-long-term-bond/

cordially,
Scofflaw

Yeah read it last month.

Transferring the money to an ECB facility won't go down well in Frankfurt.

Scofflaw wrote: »

As far as I can tell, most people think the PNs are money that's been borrowed from the ECB as part of the troika funding. Possibly that explains the government's apparent reluctance to get involved in any explanation of them whatsoever.

cordially,
Scofflaw

The PNs are explained weekly in the Irish Times, even in the Indo with less detail on a regular basis.

The information is there if people want it.

Scofflaw

noodler wrote: »

No, they haven't borrowed all the PNs yet but we have included it in out General Government Debt though.

Eh, well yeah. He copied and pasted a parliamentary reply into his paper! So the source is the Government, as I said.

No difference, either way - the schedule is the schedule!

noodler wrote: »

Of course not, but you are being facetious.

Not really.

noodler wrote: »

We are talking about a very specific element of the promissory notes - interest. KW has written two outstanding presentations on the issue, I sat through one at Croke Park last January, but he is not currently in the one in charge of the Government, the CBI or IBRC and so cannot be certain of several of the assumptions made.

That was indeed a good presentation.

noodler wrote: »

What happens if IBRC has incorporated some of the 17bn into their costings over the next ten years?

To rule out the completely that possibility that all the interest will not be returned on the basis of one paper is naive enough.

If the IBRC have incorporated some of the interest into their costings, that's just money that doesn't come from the government via another route. And, of course, the government hasn't contradicted Karl Whelan either (and indeed at other public presentations, government Ministers have introduced and then thanked Karl for his presentations on the notes).

In fact, Karl Whelan has been cited regularly by the government on the issue, and as far as I can see they're leaving the explaining of it to him - which is fair enough, since he would have rather more credibility than them. John McHale, who heads up the Fiscal Advisory Council, certainly follows Karl's position on the notes.

noodler wrote: »

If there was a market reaction to any such default - I wager there would be a marked difference in reaction to us defaulting on PNs to our own CBI compared to if we defaulted on Government Bonds to private international investors.

I'd agree there would be some difference - I don't know whether I'd go as far as 'marked', given the uncertainty it would create. Either way, "odious debt" is meaningless.

noodler wrote: »

Yeah read it last month.

Transferring the money to an ECB facility won't go down well in Frankfurt.

The PNs are explained weekly in the Irish Times, even in the Indo with less detail on a regular basis.

The information is there if people want it.

That's true, alas, of so many things, which suggests that often people either don't want the information really, or at least don't want it sufficiently to spend their time getting it and understanding it. Most people just look at what everybody else appears to believe, and don't require evidence for a proposition as long as enough other people seem to believe it. The presumption is, I assume, that somebody must have reviewed the evidence - although, again, personal experience suggests that that's rarely the case.

cordially,
Scofflaw

Good loser

Scofflaw wrote: »

As far as I can tell, most people think the PNs are money that's been borrowed from the ECB as part of the troika funding. Possibly that explains the government's apparent reluctance to get involved in any explanation of them whatsoever.

cordially,
Scofflaw

Heard Stephen Donnelly recently point out the 'significance' of the fact that the cost of 'bailing out the banks' at €64 bn coincided with the sum we are getting from the Troika.

Scoffs what is your opinion of SD's approach to the bank bailout i.e. to renege on €64 billion? Does he understand the thing? Is he just taking the stance he does for political advantage?

Dob74

Scofflaw wrote: »

The reference is to your "delay or spread the payments out", and the point is their method of doing so is to treat the promissory notes as we do the national debt.



The circular nature of the PM interest is true, and the costs of interest-bearing bonds need to be weighed against the costs of the capital repayment of the notes. Taking Karl Whelan's PM repayment table as a basis, the comparison looks something like this:

|PN Interest|Repayment|Capital Repayment|Capital Remaining|Borrowings|Bond Interest
31/03/11|0.6|3.1|2.5|28.1|2.5|0.09
31/03/12|‐|3.1|3.1|25|5.6|0.19
31/03/13|0.5|3.1|2.6|22.4|8.2|0.28
31/03/14|1.8|3.1|1.2|21.2|9.4|0.32
31/03/15|1.7|3.1|1.3|19.9|10.7|0.37
31/03/16|1.7|3.1|1.4|18.5|12.1|0.42
31/03/17|1.5|3.1|1.5|17|13.6|0.47
31/03/18|1.4|3.1|1.6|15.4|15.2|0.52
31/03/19|1.3|3.1|1.7|13.7|16.9|0.58
31/03/20|1.2|3.1|1.9|11.8|18.8|0.65
31/03/21|1.1|3.1|2|9.8|20.8|0.72
31/03/22|0.9|3.1|2.2|7.6|23|0.79
31/03/23|0.7|3.1|2.3|5.3|25.3|0.87
31/03/24|0.6|2.1|1.5|3.8|26.8|0.92
31/03/25|0.4|0.9|0.5|3.3|27.3|0.94
31/03/26|0.4|0.9|0.5|2.8|27.8|0.96
31/03/27|0.3|0.9|0.6|2.2|28.4|0.98
31/03/28|0.3|0.9|0.6|1.6|29|1
31/03/29|0.2|0.9|0.7|0.9|29.7|1.02
31/03/30|0.1|0.9|0.8|0.1|30.5|1.05
31/03/31|0|0.1|0|0|30.5|1.05
TOTALS|16.8|47.9|30.6|||14.17


So the repayment of the capital is what we're really looking at, given that the PN interest (2nd column) is circular - thus, I've only given the amounts borrowed as government bonds as equal to the capital element of the PNs. The excess borrowed as a bond to meet the interest on the PNs flows back into government coffers, so can be treated as general government borrowing. I've taken as the bond interest rate the current rate for 5-year Irish govt bonds, which is 3.439%.

The cost, then, of borrowing to meet the PN repayments is €14.17bn as opposed to €30.6bn to simply pay them down, taken over the same period. Inflation-adjusted, and assuming 2% inflation, the comparable figures are €26.44bn and €11.08bn.

So if the government can pull this off, there are considerable savings to be made in the currently applicable PN timeframe.

cordially,
Scofflaw

Have I missed something , why isn't ibrc paying any of this back.
Are there assets completely worthless?
If so just put into liquidation. Time to end the fantasy that the bond holders can't be touched.
They lent to Anglo when an acre of land was being sold for 50million. They must face up to there losses. Not the taxpayer bailing them out.

xoxoxox

GCU Flexible Demeanour wrote: »

It's one of those stories that might just turn out to be a distraction, but looks like one that has to be watched. IIRC, last time out Ireland had to pay despite similar noises being made. I just wonder if the Government can handle a second humiliation on this.

that chap babbles on about nothing. i dont believe a word he says.