Even the Wall Street Journal knows the truth about the bank debt deal


The Irish Government took a victory lap Thursday over its resolution of a €31 billion debt overhang dating back to 2010. In an all-night session of the Irish Parliament, lawmakers finally liquidated the Irish Bank Resolution Corporation, the state-owned entity that had taken on the assets of Anglo Irish Bank and was responsible for repayment of that debt to the Irish Central Bank.

Under the terms of the liquidation, the government will exchange the promissory note it provided to Anglo Irish for long-term, interest-only government bonds, which will not have to be fully repaid until 2053. The good news is that this debt restructuring will spread out the repayment burden at a time when Ireland is trying to narrow its budget deficit and return to the private debt markets.

In exchange for that forbearance, however, the Irish Government has agreed to accept direct responsibility for the repayment of what was originally Anglo Irish’s debt, so Irish taxpayers will spend the next 40 years paying for losses rung up by a failed private bank.

In one sense, Ireland sealed its fate in that regard in 2008, when the late Brian Lenihan, then Finance Minister, offered a blanket guarantee against the liabilities of the Irish banking system to calm the markets. The promissory note the previous government issued to Anglo Irish in 2010 was already an obligation of the state, which the government could not easily escape without being deemed in default.

At his press conference Thursday, ECB President Mario Draghi would repeat only that the central bank’s Governing Council had unanimously taken notice of the restructuring—a formulation that seemed to suggest that the ECB would neither formally endorse the move nor stand in its way.

But it’s no secret that the ECB has played a key role in this Irish drama. Lenihan maintained near the end of his life that he had put the bank guarantee in place at the insistence of the ECB, although the ECB has never acknowledged that publicly. The lion’s share of the money that the Irish government subsequently paid out pursuant to that guarantee went out of Ireland, to make whole private investors and banks elsewhere in the euro zone.

Ireland’s immediate burden has been eased by Thursday’s deal, but Irish taxpayers will still spend decades paying the price demanded by the ECB at the height of the panic in 2008.



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