Wednesday 26 October 2016

Dan White: A 'Grexit' could free us from shackles of €32bn Anglo debt


On Friday Greece “delayed” making a $300m repayment due to the IMF.

Instead the country, which is due to repay the IMF a total of $1.7bn this month, proposes to use a rarely-used IMF rule to “bundle” its repayments into one payment at the end of this month.

That’s the official spin. The truth is that Greece, which owes its creditors a total of €317bn has virtually  run out of money and prefers to use whatever cash it has still remaining to pay pensioners and public sector workers rather than the likes  of the ECB or the IMF.

And who could blame Greece? With its debts equivalent to 175pc of the value of its annual economic output, it should be as clear as daylight that Greece’s debt burden is completely unsustainable and must be drastically written down.

Clear to everyone except the ECB and the IMF that is.

Regardless of what either the Greeks of their creditors say officially, the IMF isn’t going to get its money at the end of the month.

While everyone will try and pretend, at least initially, that this doesn’t constitute a formal default, don’t be fooled.

Last Friday’s missed repayment starts the countdown to a formal Greek debt default and its departure/ejection from the Eurozone, if not at the beginning of July then certainly a few weeks later.

After five years of false alarms, “Grexit” – Greece’s exit from the Eurozone – is almost upon us.

Which of course begs the question: what does all of this have to do with us here in Ireland?

Sure aren’t we very different from Greece. Our bailout is over, the Troika have gone home and the Irish economy is once again growing strongly.

All true, but some of the toxic legacy of the bailout remains.

Not least the fact that this country was forced to shoulder the full cost of bailing out the Irish banks, at one stage €64bn, in order to protect the British, French and German which had lent so recklessly to them.

The dirty little truth is that the November 2010 “bailout” was all about bailing out the British and mainland European banks which had lent to their Irish counterparts.

To add insult to injury EU leaders have welched on their June 2012 pledge to reimburse this country for some of the cost of the bank bailout.

But the imminent Greek debt default and departure from the Eurozone gives us a very powerful lever to finally right this wrong.

When the Government liquidated Anglo in February 2013 it replaced most of the €32bn of promissory notes which were used to plug the holes in its balance sheet with special bonds that mature between 2040 and 2053.

The plan was that these bonds, which were initially bought by the Central Bank of Ireland, would gradually be sold off to investors.

As things stand the Irish Government pays the Central Bank of Ireland the interest due on these bonds.

This artificially boosts the Central Bank’s profits.

The Central Bank then returns this money to the Government in the form of a higher dividend on its artificially-boosted profits.

The ECB has been whingeing in its recent annual reports that Ireland has been dragging its feet in doing this and that, God forbid, by failing to do so with sufficient haste the Anglo bonds might constitute “monetary financing” – where a central bank prints money to cover a government’s deficit – by this country.

Well isn’t that just too bad.

The Central Bank still has about €25bn of these bonds on its books.

The Irish Government should block it from selling them to private investors.

If the ECB complains about monetary financing the Irish Government should point to the June 2012 “promise” and invite it to take the issue up with the EU leaders.

With Greece’s looming default and departure from the Eurozone likely to be extremely messy the Irish Government now has the lever to force EU leaders to deliver on their June 2012 “promise”.

It shouldn’t hesitate to use it.

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