# Spain got a much worse deal than Ireland.



## Brendan Burgess (15 Jun 2012)

Séamus Coffey had a good article last Friday, anticipating Spain's deal suggesting that we got a much better deal that Spain was going to get.

In effect, we borrowed €30 billion at 1% through the Promissory Notes, while Spain would probably pay around 4%. 



> Although we can’t be certain, if Spain does get money from the ESM it is  likely it would come with an interest rate of around four per cent.   One option for Ireland is to look to transfer our Promissory Note  liabilities to the ESM at the same terms.  This would not be a good  move.
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> Due to the nature of the funding arrangements put in place for the IBRC  with the Central Bank of Ireland the final cost to the State of the  money provided to via the Promissory Notes is equal to the ECB’s main  refinancing rate.  At present, this is just one per cent and there is  little possibility of that increasing anytime soon.  A deal linked to  the ESM would not be a good switch for the Promissory Notes that remain.   Rather than Ireland looking for what Spain might get, it is possible  that Spain will look  for the arrangement that Ireland got.


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## peteroneillj (2 Jul 2012)

Should the interest cost on the remaining €28 Billion IBRC Promissory note not include the 8.6% interest coupon provided to IBRC? Most believe IBRC profits shall stay in state system. But as Anglo has shown it really is a bottomless pit which sucks in everything. There is no proof this 8.6% interest coupon shall not just be eaten into by debt/expenses/legal fees rather then passed directly back to the state as a dividend. Then you must include Irish government bond yields to borrow the money to repay the initial debt (Minimum 3.5% based on EU/IMF program, raising to 7% currently on open market). So the IBRC Prom Note in terms of interest shall cost state:  ECB ELA Costs: 1.5%, Irish State bond Yields Cost: 3.5 - 7%, Admin/Legal/Insurance: 1% (As noted by BOI fee).

So 5 - 8% interest cost to state (even if get 100% return on interest paid to IBRC) not 1%. Spanish banks shall be asked to repay the €100 Billion assistance provided to them through future *Bank profits* and not the state directly (according to most reports) with the Spanish government acting more in a guarantor capacity for viable companies (unlike IBRC which is a bankrupt failed entity, of which the state is being forced to repay debts through an increase in state borrowing as the bank gradually winds down). With Euro Zone announcements over the weekend, not to sure anyone knows what shall happen in terms of our banking debts/Promissory note though.


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## Brendan Burgess (2 Jul 2012)

Hi Peter

It's difficult to understand, and even more difficult, to explain the cost of the Promissory Notes.

I kicked off an analysis of it here: 

What is the cost of the Promissory Notes?

Séamus Coffey corrected and clarified some of the issues, but the conclusion of most people is that the cost is around 1% while they are Promissory Notes. It rises when we refinance them to the cost of the refinancing. 



> There is no proof this 8.6% interest coupon shall not just be eaten into  by debt/expenses/legal fees rather then passed directly back to the  state as a dividend.



The state is on the hook for these anyway.


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