Much debate has arisen recently on the promissory notes debacle and its impact on the economy. The issue seems to be clouded in mystery and many people may have shied away from it believing it to be yet another complex financial problem. The reality is that such discussions are generally made to seem difficult to grasp by the establishment and its media, to cover-up the story’s scandalous nature. This is exactly what is happening with the promissory notes.
Realising that the financial state of Anglo Irish Bank and Irish Nationwide (now collectively known as Irish Bank Resolution Corporation – IBRC) was far more precarious than initially thought and with not enough cash in reserve, the Fianna Fail/Green Government had to find another way to bail out the bondholders.
In response they wrote promissory notes (essentially IOUs) to Anglo and Irish Nationwide, which then cashed these in with the Irish Central Bank (ICB) who in turn printed money and handed it back to the banks. This is the much discussed Extraordinary Liquidity Arrangement (ELA). IBRC/Anglo use this cash to pay off bondholders, depositors and the European Central Bank.
The ELAs are paid back to the Irish Central Bank with cash from government funds – that they are “raising” by implementing tax increases and cuts in public spending. The Irish Central Bank then takes this money out of circulation by destroying it – the money is burnt!
The European establishment insists on this procedure as they fear that if it was not carried out, higher-levels of inflation would be created, which neo-liberal Capitalists fear nothing more as it greatly hinders profitable returns on financial assets. This is nonsense as the €31 billion of extra liquidity involved would have no impact whatsoever on the eurozone economy.
On top of this the EU and ECB insist that the government must pay the IBRC €17 billion in interest on top of the €31 billion. For example in 2014 the government is scheduled to pay IBRC €1.8 billion in interest payments – therefore to stick with the Troika rules on budget deficit targets it will have to make an additional €1.8 billion in cuts and tax increases on top of other austerity measures.
The promissory notes will amount to €3.1 billion annually for the next 15 years (the final payment arrives in 2031) and will be financed from a mixture of high-interest “bailouts”, tax increases and public spending cuts. Either way ordinary people will be footing the bill. This whole process was created simply to safeguard the rotten financial system and to ensure contagion into other banks does not spread. Although there is no prospect of contagion as this process is a part of a “closed system” that involves the IBRC/Anglo, the government and the Irish Central Bank.
Austerity measures, cuts and tax increases, which will deflate the economy, cost jobs, force young people to emigrate, and destroy your children’s education and the care they will receive at your local hospital are being implemented at the insistence of this government and the EU so that the money can be burnt! This is utter madness.
The Socialist Party demands that the €3.1 billion promissory note payment due on the 31 March should not be made. The Irish Central Bank should write off this debt and that should be the end of it. If this was to happen it would save ordinary people at least €47 billion, decrease the national debt and dramatically reduce the budget deficit.
By Stephen Boyd, Editor, the Socialist