Here's The Best Explanation We've Seen About The Emergency, Late-Night Plan To Restructure Irish Bailout Debt

Enda Kenny Ireland

There’s a debate in Ireland happening tonight designed to help reduce the massive debt burden the country is still facing since the collapse of the country’s banks in the financial crisis.

Virtually everyone is confused, and the reports on what it’s all about aren’t clear.

Lorcan Roche Kelly of Trend Macrolytics has emailed us a fantastic explainer of what’s going on in Ireland. This is the clearest explanation we’ve seen yet, and we’re very grateful for Lorcan’s clarity on this. Be sure to follow him on Twitter @lorcanrk.

His note to us is below the dotted line.


In the wake of the collapse of the irish property market, two of the worst Irish banks — Anglo Irish Bank and Irish Nationwide Building Society — were nationalised and turned into a new institution called Irish Bank Resolution Corporation (IBRC) with the intention of working the institution down over a number of years.

The new institution had funding needs of over €30 billion that were met by the government — as owner of the institution — writing a debt instrument called a Promissory Note. This note was repoed through the Irish Central Bank through a mechanism called Extraordinary Liquidity Assistance (ELA). Under ECB rules, ELA is outside normal ECB lending and is done at a national central bank level with ECB oversight.

The terms of the Promissory notes require payment at the end of each March of €3.1 billion from current spending.

The current government — elected in 2011 — promised to reform the Promissory notes to end the arrangement requiring €3.1 bn annual payments.

In the approach to to next payment — due in 8 weeks the government has promised not to make the payment.

Two weeks ago a government proposal to exchange the prom notes with longer term debt on the Irish Central Bank balance sheet was rejected by the ECB.

Today’s developments are the government trying to skin the cat another way. First, they are ending IBRC. After the passage of the legislation currently in front of the Dáil, it will no longer exist.

The IBRC assets will be moved to NAMA (Ireland’s bad bank). The prom note will be replaced at the Irish Central Bank with NAMA issued bonds that are covered by a government guarantee.

The NAMA bonds will be structured like normal bonds — only requiring annual interest payments until the end of their term — and so will lead to reduced current expenditure in the short term.

However, this deal still has to be given the ok from the ECB who have oversight of the Irish Central Bank. They may make their decision tomorrow, if so it will be announced by Mario Draghi at the ECB press conference at 1:30 GMT.

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