{"id":254,"date":"2012-03-30T08:47:10","date_gmt":"2012-03-30T08:47:10","guid":{"rendered":"https:\/\/karlwhelan.com\/staging\/?p=254"},"modified":"2012-03-30T08:47:10","modified_gmt":"2012-03-30T08:47:10","slug":"promissory-note-deal-not-what-had-been-em-promised","status":"publish","type":"post","link":"https:\/\/www.karlwhelan.com\/promissory-note-deal-not-what-had-been-em-promised\/","title":{"rendered":"Promissory Note \u201cDeal\u201d: Not What Had Been, Em, Promised"},"content":{"rendered":"

Yesterday\u2019s promissory note announcement was so complex that one might imagine that the government\u2019s officials have been cooking up the various different elements for months. However, there is some fairly strong evidence that the additional elements (the role of NAMA and Bank of Ireland) reflect last-minute changes forced on the government by the ECB\u2019s refusing to give any ground.<\/p>\n

The reason I was surprised yesterday afternoon to hear of NAMA and Bank of Ireland\u2019s involvement is that the shape of the deal that was supposed to be announced had been pretty well flagged beforehand and yet this deal was different.<\/p>\n

What had been flagged in the moments leading up to the announcement was the IBRC were going to receive their cash payment from the promissory note but (and this is the crucial bit) rather than use it to repay ELA, they would use it to purchase a bond.\u00a0 The actual announcement say them make an ELA repayment via incurring a debt to Bank of Ireland that must be repaid next year.<\/p>\n

Why do I say the original plan was a cash payment to be used to purchase a bond? Well, for starters, there\u2019s the IBRC\u2019s own annual report<\/a>, released yesterday morning but presumably sent to press a few days beforehand. On page 168, it describes the proposed arrangement as follows:<\/p>\n

Following an outline request, made on behalf of the Minister for Finance, the Bank is in discussions with the Department of Finance and the NTMA regarding a settlement proposal to utilise the funds due from the next instalment under the promissory notes on 2 April 2012 to acquire an Irish Government bond with an equivalent value.<\/p><\/blockquote>\n

\u201cUtilise the funds \u2026 to acquire a bond\u201d can\u2019t really mean anything other than receiving a cash payment and using it to buy a bond rather than pay off ELA.<\/p>\n

Then we had Governor Honohan\u2019s appearance at the Oireachtas Finance committee on Tuesday<\/a>. Honohan was given a number of chances to describe the deal in the offing and in each case chose to describe it as a cash payment that would then be used to buy a bond.<\/p>\n

For example, here\u2019s an excerpt from Deputy Michael McGrath’s questions<\/p>\n

Deputy Michael McGrath: In the course of public disclosure, originally made early last week, of the shape of the deal on this month\u2019s payment, it was stated the cash payment would be made by the State to Anglo Irish Bank but that in return the bank would buy an Irish Government bond.<\/p><\/blockquote>\n

Here\u2019s the portion of Honohan\u2019s answer relating to the cash payment.<\/p>\n

Professor Patrick Honohan: With regard to cash payments, the detail is still not absolutely final. Assuming this arrangement works out, when it is complete – even if it takes a few more days – any cash payment would circle back. There will be no net cash outlay and any cash payment made by the Exchequer would come back.<\/p><\/blockquote>\n

Here\u2019s Honohan replying to Deputy Pearse Doherty<\/p>\n

Professor Patrick Honohan: That speaks to the issue of cash payment. A cash payment which is immediately extinguished by another transaction is still a cash payment which is valuable for communicating to markets that the Government does make its payments, even if the total effect of the transaction is to extinguish that cash payment and have the cash come right back to the Government in a prompt manner. I hope there is no tendency to get terribly excited about a cash payment which is rapidly extinguished.<\/p><\/blockquote>\n

Finally, when asked about Deputy Stephen Donnelly about IBRC\u2019s cash needs, the Governor replied<\/p>\n

Professor Patrick Honohan: The question I noted in particular related to how much cash IBRC needs. In fact, the objective of the plan is to eliminate the cash need by postponing it.<\/p><\/blockquote>\n

However, in actual fact, under the current plan the IBRC has a \u20ac3.1 billion cash need that it is honouring by means of a complex chain of transactions in which it borrows from NAMA and Bank of Ireland. There is no sense in which the IBRC’s cash needs have been postponed.<\/p>\n

I can only assume that the \u201cassuming this arrangement works out\u201d element of Honohan\u2019s reply to Michael McGrath didn\u2019t actually work out. And the likely reason for this failure was that the ECB insisted, as it appears they had all along, that a \u20ac3.1 billion ELA repayment be made, something which required a cash payment.\u00a0 That this cash has been temporarily sourced from NAMA and then Bank of Ireland doesn\u2019t at all change the fact that this deal is not what had been flagged and does not have nearly the benefits of that deal.<\/p>\n

Optimistic ministerial talk of \u201cmovement from the European authorities\u201d seems highly misplaced. \u00a0(If the original proposal had gone through, there would have been some grounds for such a statement.) More accurate, I think, were junior minister Brian Hayes\u2019s comments on Today FM<\/a> to the effect that negotiating with the ECB was negotiating with bankers and you couldn\u2019t get far with that, and that future negotiations needed to be with European politicians.<\/p>\n","protected":false},"excerpt":{"rendered":"

Yesterday\u2019s promissory note announcement was so complex that one might imagine that the government\u2019s officials have been cooking up the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[8,4],"tags":[14],"class_list":["post-254","post","type-post","status-publish","format-standard","hentry","category-central-banks","category-irish-economy","tag-promissory-notes"],"_links":{"self":[{"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/posts\/254","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/comments?post=254"}],"version-history":[{"count":3,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/posts\/254\/revisions"}],"predecessor-version":[{"id":257,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/posts\/254\/revisions\/257"}],"wp:attachment":[{"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/media?parent=254"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/categories?post=254"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.karlwhelan.com\/wp-json\/wp\/v2\/tags?post=254"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}