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Why not default on the Promissory Notes

  • 22-03-2012 4:22pm
    #1
    Fergus_Nash
    Registered Users, Registered Users 2 Posts: 228 ✭✭


    So it looks like the €3.1bn promissory note will be deferred for 13 years or so. It had been calculated that in total it would cost c. €47bn on these IOUs by 2025 by including the interest rate. However this figure could change with ongoing events.

    Most people will have an idea about this. They should also know that this money is going to be torn up and of no use (620,000,000 €50 notes in €47bn if simple division is correct - there's a nice thought for you).

    So given that this is pretty much the ECB hanging the Irish people by the balls (apologies), what would be wrong with giving Draghi, et al the proverbial two fingers and simply not paying the money?

    Greece de facto defaulted on the bondholders, and Spain did something else recently also to reduce their burden, if I am correct.

    I do know that the Independent answered this a few weeks ago by saying that it would blow a big hole in the IBRC's budget sheet or something. Can anybody explain what that means to me please?


Comments

  • #2
    later12
    Closed Accounts Posts: 11,299 ✭✭✭✭later12


    Fergus_Nash wrote: »
    S
    So given that this is pretty much the ECB hanging the Irish people by the balls (apologies), what would be wrong with giving Draghi, et al the proverbial two fingers and simply not paying the money?
    The argument is that Anglo would be insolvent on paper. The Promissory Notes, or any securities replacing them, are assets that must be retained to keep the Central Bank satisfied that Anglo is "technically solvent". The Central Bank cannot extend ELA to an insolvent institution.

    If Anglo became insolvent, the Central Bank would have to ask for its money back. The risk is assumed here by the Central Bank.

    It should be pointed out that it has been suggested to Laura Noonan 'by those in a position to know', that not all of the ELA is "new money". At least a portion of it seems to come from the Eurosystem, i.e. from other European central banks. I sent an email to the central bank to ask about this, but predictably, it's not something that the Central Bank talks about. If true, that would create an additional, undesirable complication for Ireland and our Central Bank in the event of a 'repudiation'.


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