Ireland’s government faces a legal challenge tomorrow to the burdening of taxpayers with the cost of bailing out former Anglo Irish Bank Corp. and Irish Nationwide Building Society.
David Hall, a director of Irish Mortgage Holders Organisation, a debtors’ advocacy group, is questioning whether the state’s use of 31 billion euros ($41 billion) of so-called promissory notes, or IOUs, to rescue the Dublin-based lenders is a legal use of public funds, Hall said on his Twitter account on Jan. 13. The case is set to be heard over three days.
While Hall declined to comment on the case when contacted by phone today, he confirmed the Twitter account was his. He said that he is being represented by lawyers John Rogers and Ross Maguire. Irish Finance Ministry officials weren’t immediately in a position to comment.
As the rescue bill for Anglo Irish and INBS soared in 2010, then Finance Minister Brian Lenihan held off injecting all the cash into the lenders straight away. Instead, he promised to provide the money over more than 10 years, by issuing promissory notes to them. This avoided the nation having to borrow from bond investors at a time when its borrowing costs were soaring.
The legal challenge comes as the government is in the “final stages” of restructuring the notes, Deputy Prime Minister Eamon Gilmore said yesterday.
The notes are currently used as collateral to access emergency funding through the Irish central bank. The government is seeking to secure an accord with the European Central Bank so that the money is paid back over a longer period of time.
The promissory notes make up the bulk of the 34.7 billion-euro rescue cost of Anglo Irish and INBS, which were merged and renamed Irish Bank Resolution Corp. 2011 and ordered to wind down by the end of the decade.
“Neither side to the case likes the promissory notes, which were effectively used to fund the bailout of private creditors to Anglo Irish,” said Conall Mac Coille, chief economist at Dublin-based securities firm Davy. “But the government is taking a different approach in seeking to extend the repayment of the bailout and the ECB’s funding of it.”