Thursday, February 7, 2013

Prom night

This post has been written in 4 goes, each time adding a new bit to the end as things change. Sorry about the lack of coherent style.
According to the movies, it is that amazing time in every teenagers life. The dorky boy asks the shy girl to the dance, they both turn into beautiful swans and the cheerleader falls into the punch bowl in a fight with her quarterback boyfriend. Prom night - it's awesome. Except in Ireland when it refers to the overnight emergency legislation to appoint a liquidator to IBRC, that wonder financial institution that used to be called Anglo.
I got home last night just in time to watch the stage 2 "debate" in the Dáil and ended up not getting to bed until the committee stage was complete and the bill went down the corridor and up the stairs to the Seanad. While it may not have been high drama, you certainly got the feeling at times that you were watching something important. I'm not going to go into the details of the IBRC bill, as there are many more qualified finance and legal people out there. However I do want to make some observations about the events.
The biggest question is why did it happen last night? Well it seems as though our friends in the ECB couldn't keep their gobs shut and let it out that the Government might be about to liquidate IBRC. With so many other creditors, it became crucial that we got to appoint the liquidator rather than have an application heard from, say, Sean Quinn in the High Court this morning appointing a liquidator more amenable to him. So in that sense the government got the tactics right and just played the nuclear option of emergency legislation. But it does question how good friends we really have in Frankfurt.
Another surprise to me was the length and detail of the bill. This has obviously been sitting in a drawer for a while waiting to be dusted off at the right time. You can't announce a liquidation until it is already happening, otherwise people will panic and run to the hills or courts. But the fact that it hadn't leaked from Dept of Finance or AG's office is testament to the tight ship being run there at the highest levels.
On the debate itself, Noonan, Doherty and Donnelly all performed well. Poor contributions from both Taoiseach and Tánaiste and some pretty awful stuff from parts of the technical group. On that, the technical group would actually have been best served by giving all their time to Donnelly as he has the best grasp on the issue and some really pertinent questions and lines of attack on the bill. For example the issue of temporary interference with the property rights of people is a potential pandora's box. This seemed an unacceptable idea when it came to upward only rent reviews but now seems to be fair game.
The worst part of the debate was the continued heckling and jeering at both Sinn Féin speakers by senior members of the government side. Both Pat Rabbitte and Brendan Howlin did themselves no favours by their carry on. I found it quite embarrassing that seemingly intelligent ministers resorted to school yard behavior just because they didn't like what was being said across the chamber.
Then at lunchtime today we had Mario Draghi's non event of a press conference. In his 15 minute speech he didn't mention Ireland or the Pro Notes once. When asked about them he just said that the council had unanimously noted the events in Ireland. I guess that means tacit approval because the deal still lets the ECB get all it's money back, just quicker than they thought.
I missed Enda's announcement as I was in a meeting this afternoon, but the deal seems to be a reasonable one. We get to turn the pro-notes and their 3.1B every year into an interest only loan at about 4% for 25 years and then start paying down the capital. This reduces our annual cost by over a billion and we get the benefit of 25 years of inflation to turn the capital sum into something a bit less daunting. It is still really annoying that we have crystallized privately generate debt into fully fledged sovereign debt and that not a single bondholder has been burned. But given all that, it's probably as good a deal as we can expect. It will certainly make next December's budget easier and/or allow for additional investment in growth strategies.
I'll let the dust settle now and come back to this in a day or so once things are clearer.

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