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ECB to reconsider Promissory notes

Wednesday, February 06 08:37:21

European Central Bank officials may consider as soon as today which concessions they are prepared to grant Ireland to lower the cost of the nation's bank bailout, according to two people with knowledge of the matter.

Irish Central Bank Governor Patrick Honohan will meet his European counterparts for the first time since they rebuffed an initial bid to cut the burden of Anglo Irish Bank Corp.'s rescue two weeks ago. He will likely pitch a new proposal during an unofficial dinner preceding the ECB's Governing Council meeting tomorrow, according to the people, who declined to be named because the matter is private.

While Honohan's plan will continue to include the replacement of the so-called promissory note the government issued in 2010 with a long-term bond, he'll drop a proposed guarantee that the Irish central bank would hold the security for at least 15 years, the people said. A decision may be made as soon as tomorrow, one of the people said.

Irish officials are trying to find agreement with the ECB over an issue that has dogged the country's attempts to work its way out of a bailout agreed in 2010. In Dublin, labor unions are preparing to hold the biggest demonstration in two years on Feb. 9 as they press for a deal.

Paul Bolger, a spokesman for the Irish Finance Ministry, and Nicola Faulkner, a spokeswoman for the Irish central bank, declined to comment on the plan. A spokeswoman for the ECB said that talks on the matter are ongoing and any conclusions on the outcome are premature.

Policy 'Bedrock'

"There are a few preconditions on which any rescheduling of the notes has to be based. It has to meet the test of no monetary financing, which is a bedrock of ECB policy," said Philip Lane, an economics professor at Trinity College Dublin. "There are many ways to come up with something."

Irish newspapers are reporting that the Labour Party, the junior member of the ruling coalition, is raising the specter of a government collapse if a deal to relieve bank debt flounders. Prime Minister Enda Kenny said yesterday he expects an accord to be reached with the ECB by the end of next month.

The collapse of a real estate bubble in 2008 forced the state to inject or pledge 63 billion euros ($85.5 billion) into the banking system. That included about 30 billion euros of so- called promissory notes used to rescue Anglo Irish in 2010.