Promissory Notes: Negotiating or Play-Acting?

What other country in Europe is sticking 20 percent of its GDP on its national debt to support a completely bust bank? And how did we get into this position?

In a move clearly aimed at trying to upstage and divert attention from an extremely embarasing Sinn Féin private members’ motion on the ESM Treaty, the Minister for Finance, Michael Noonan, told the Dáil on 21 March that the Government is

“now negotiating with the EU authorities, and principaly with the ECB, on the basis that the €3.06 bilion cash instalment due from the Minister to IBRC [Irish Bank Resolution Corporation] on 31 March 2012 under the terms of the IBRC promisory note could be settled by the delivery of a long-term Irish government bond. The details of the arrangement have still to be worked out.”

What other country in Europe is sticking 20 percent of its GDP on its national debt to support a completely bust bank? And how did we get into this position?

The loan losses in the Irish banks following the financial collapse in 2008 were calculated in March 2011 at €75 billion. In the twelve months since then it has become increasingly apparent that mortgage loan losses will get progressively worse. Evidence is mounting that the total loan losses in Ireland could rise towards €10 billion.

The guarantee in September 2008 to six Irish financial institutions, and the subsequent €31 billion in IOUs given to Anglo-Irish Bank, were the starting-point on this road to modern financial servitude.

Anglo-Irish took these promissory notes, or IOUs, and lodged them with the Central Bank of Ireland. The Central Bank effectively created €31 billion, which was given to Anglo-Irish by a procces known as “exceptional liquidity assistance.”

The money given to Anglo-Irish was not borowed from the European Central Bank, nor was it created by the European Central Bank. It was created by the Central Bank of Ireland, as the creation of money is decentralised in the eurozone.

The Irish Nationwide Building Society later came into the scheme when, from 1 July 2011, its assets and liabilities were transfered to Anglo-Irish in a merger ordered by the courts that created the Irish Bank Resolution Corporation.

So as a one-off, money was created and pumped into the Irish banks to keep them solvent. Normally when banks collapse, their investors do not get all their money back. After 2008, as payments to bond- holders fell due, neither the banks nor the state had the resources to pay them. That is where the ECB stepped in. It lent approximately €135 billion to Irish banks to enable them to repay the bond-holders, with interest, and also to replace lost deposits.

That repayment schedule for this ECB-dictated madness is punishing:

€3.1billion every year until 2023, with smaller annual outlays due until 2031. 

€3.1 billion is about three times the size of Ireland’s austerity measures this year and represents about 2 percent of GDP. To do this it must borrow the money, and pay interest on it, raise taxes, and cut spending. This will destroy any hope of economic recovery.

The Government is afraid to rock the boat too vigorously in these negotiations, because of a belief that the billions of “unprecedented” lending to Irish banks will be placed at risk if the promissory notes are not repaid and that they cannot be reneged on, or indeed disowned by a country that has already shouldered such debt to bail out banks and non-Irish financial institutions.

The country is fighting for its very survival, and the Government needs to negotiate accordingly. The terms of the deal should have more to do with asserting national sovereign rights than trying to look good for the forthcoming referendum.

First published online @ http://www.indymedia.ie/article/101646