Friday, 26 July 2013


Heaven help me, but I'm going to try to explain the deal done by Ireland’s Finance Minister Michael Noonan last February when he transposed the contentious Promissory Notes to Sovereign bonds.

In 2010 Anglo Irish Bank and Irish Nationwide weren't just in serious trouble, they were bust, dead in the water. Between them they had liabilities of €30.6bn (Anglo with over €25bn of that), didn't have the assets to cover those liabilities, leaving their various investors seriously exposed to a major hit. 

At this stage both the European Commission and the ECB were involved, were fully informed of the crisis. 

The ECB controls the printing of euro in the various Eurozone countries. No country can just willy-nilly print additional currency; before an individual bank can get a cent, never mind billions, it must produce evidence of solid assets to back up its request. When they went to the Central Bank of Ireland in 2010 neither Anglo nor Irish Nationwide had any such solid evidence; in fact they were zombie banks, insolvent in practice (they could - still can - actually legally hide this, too complex to explain here!) and under its own rules and regulations the ECB should have refused permission for the Irish Central Bank to print that money.

Fearing for the euro, fearing for the survival of bigger banks in the so-called core countries which at the time were hugely exposed to banks in the so-called peripherary, the ECB accepted as collateral the infamous Promissory Notes, signed by Ireland's then Minister for Finance, Brian Lenihan. It should not have done so but because there were no structures in place for bailing out a bank (there are now), they accepted those notes. And so it began.

The ECB allowed the Irish Central Bank print those extra €30.6bn, which went to Anglo and Irish Nationwide, bailed out their investors. 

The ECB then called in those notes, however, insisted that year by year over the next decade and more the Irish government - the Irish people - would have to take that €30.6bn back out of circulation; we would have to borrow those billions, real money which then became real debt on which we would be paying real interest, and destroy those billions, until the entire €30.6bn had been taken out of circulation.

By January of 2013 most people in Ireland were beginning to grasp the obscenity of this neat little arrangement. Though not a single cent went to the Irish exchequer, not a single hospital bed paid for, not a single classroom, every March 31st from 2011 to 2023 our government would borrow €3.06bn, it would end up with the Central Bank of Ireland, who would destroy it. All to bail out two zombie banks.

From 2024 to 2031 a reducing amount would be borrowed, would still be burned, until the entire original €30.6bn Promissory Notes plus interest, was paid. All told it came to €47.58bn but the interest went largely to ourselves (table 1 & note 1 below).

As the reality of this absurdity dawned on people there was outrage, rightly so – this was from the Laurel & Hardy School of Economics, surely?

Pressure mounted on the government to simply tear up the remaining €25bn Promissory Notes and face down the Troika, the ECB in particular. But no, Government didn’t have the stomach for that particular fight. Instead they came up with a new arrangement, a ‘deal’ which transforms that very debatable debt (‘Totally illegal’, Finance Minister Michael Noonan admitted on national radio) into sovereign bonds.

Here is what happens now: as a result of Noonan's 'deal' the National Treasury Management Agency (NTMA) issued bonds to the value of €25bn (currently held by Central Bank of Ireland); that money was used to 'buy' the remaining Promissory Notes, which were then destroyed.

In other words, one €25bn debt was simply exchanged for another. The actual Promossory Notes - the paper - was destroyed, the actual debt debt remained, in full.

So what happens with the debt? A new schedule, that's all, a new schedule of borrowing, burning and payment, the burden shifted from this generation to the next, and the generation after that.

Before the end of 2014 the Central Bankwill sell the first of the new P Note bonds, the smallest of the bonds at that, a mere €500,000,000. Immediately it's sold we start paying interest to the new bondholder; in 2038, that bondholder comes a-calling - 'thanks for the interest for the last 24 years, now I'd like my original €500,000,000 back.'

Before the end of 2015, another €500m will be sold, then another and another and another, 2016/17/18, interest being paid immediately they are purchased, the principal to be paid sometime into the 2040s.

It gets worse. In 2019, the first of five annual €1,000,000,000 bonds will be sold, the billions then burned; in 2024 it increases again, eight years now at €2,000,000,000 per year, every cent borrowed and burned.

Finally, in 2032 the last of the P Note bonds is sold, this one for €1,500,000,000, making a not-so-grand total of €25bn, exactly the same as the remaining Promissory Notes (table 2).

As explained above, exactly the same thing happens to all those billions as was happening before the Noonan 'deal', only at a different pace. Up to March of last year the government was borrowing €3.06bn per year, now the pace has eased as has the pressure on them. But that is all they've done, eased the pressure on themselves and their annual budget. The overall result remains the same; to bail out the failed investors in two bust banks, a broke nation is borrowing billions to burn, all at the behest of the ECB, all also because our own government didn't have the spine to stand up for its own people.

Meanwhile, however, on all those borrowed and burned billions we’re paying interest (over €40bn in total) but in 2038, a new schedule kicks in - the bondholders coming a-calling, looking for their original money back. Yes, that money, the billions we destroyed.

Just pause for a second and take that in. Expecting to make huge profits, institutional financiers loaned billions to cowboy Irish bankers in Anglo and in Irish Nationwide. Those investments failed, now we – the Irish people – are landed with this bill, plus interest, a projected total of €72bn (all going well!). Rather than fight this odious debt our Finance Minister converts the questionable Promissory Notes to sovereign bonds, shifting most of the responsibility for paying that private debt on to future generations.

Would you do this to your own kids? To settle disputed debt you were being strong-armed to pay, would you take out a huge loan for your kids and their kids to pay? That’s what Minister Noonan has now done in your name.

Inter-generational national debt is normal but there’s nothing ‘normal’ about this. The Promissory Note billions were for the exclusive benefit of banks, bankers and high financiers; the sovereign bonds that now replace them are exactly the same. 

Every government spokesperson on this talks about savings - how do you effect ‘savings’ in paying a debt you never owed? What they’re diverting you from is this – with the Promissory Notes, we were borrowing to burn; with these Sovereign Bonds we are still borrowing to burn, exactly the same amount.

As with so much that he has done since becoming Minister for Finance, Noonan’s new ‘deal’ has been generally acclaimed in our national media. Since this government came to power, however, one little boy, then another and another has been saying – the Emperor has no clothes.

On this deal we’re saying ‘Yes, the Emperor has new clothes – same as the old clothes’. It’s a sham, it’s a scam.

Choose who to believe; choose what you do next.

Ballyhea Says No, Charleville Says No; a growing number of towns and villages around the country have joined us in the Ireland Says No campaign. There is still time for you to join us, but that time is running out. Those bonds are scheduled to begin issuing before the end of 2014; no matter what, that must NOT happen.

Twitter: @ballyhea14; @fb_fitz; @fitzcheese; @cathandpat.

Facebook: Ballyhea bondholder bailout protest.


This schedule involved the destruction of billions every March 31st

                                                    TOTAL FOR PERIOD            RUNNING TOTAL
2010                 €0.2bn                                       €0.20bn                              €0.2bn
2011 - 2023      €3.06bn/annum (13 yrs)         €39.78bn                           €39.98bn
2024                 €2.1bn                                       €2.10bn                           €42.08bn
2025 – 2030     €0.9bn/annum (6 yrs)                €5.40bn                           €47.48bn
2031                 €0.1bn                                        €0.10bn                          €47.58bn

(yet to be approved by the ECB) 

2014 – 2018:        €0.5bn/annum (5 yrs)               €2.5bn
2019 – 2023:        €1.0bn/annum (5 yrs)               €5.0bn
2024 – 2030         €2.0bn/annum (8 yrs)              €16.0bn
2031                     €1.5bn                                     €1.5bn
NOT-SO-GRAND TOTAL:                                     €25bn

2038                         €2bn                                                  €2bn   
2041                         €2bn                                                  €4bn   
2043                         €2bn                                                  €6bn   
2045                         €3bn                                                  €9bn   
2047                         €3bn                                                  €12bn   
2049                         €3bn                                                  €15bn   
2051                         €5bn                                                  €20bn   
2053                         €5bn                                                  €25bn