By Paul Taylor
PARIS, March 15 (Reuters) - Ireland is seeking a significant reduction in the 17 billion euros ($22 billion) of interest it would have to pay on a promissory note issued to bail out its failed banks, Finance Minister Michael Noonan said on Thursday.
On a visit to Paris, Noonan said Dublin was negotiating with the European Central Bank, the European Commission and the International Monetary Fund to replace the promissory note with another instrument, lengthen the maturity and “keep the interest rate quite low”.
He said he hoped for a deal by the end of this year.
The previous Irish government issued the note to Anglo Irish Bank and home lender Irish Nationwide, now merged and known as the Irish Bank Resolution Corporation, to help them access emergency funds from the Irish central bank - part of the ECB’s Eurosystem - to repay private bondholders.
The cost to the taxpayer of bailing out the banks, at the root of the country’s economic woes, was initially estimated at 1.5 billion euros, but ballooned to more than 30 billion euros, with most to be paid off with interest over 10 years.
Dublin has pursued a months-long campaign to reduce the cost of the bank rescue, which would help Ireland towards its aim of becoming the first euro zone member to exit a bailout programme next year.
Last year Noonan said the notes would cost about 47 billion euros over their 20-year lifetime, including an interest cost of around 17 billion euros and capital of 30.6 billion euros.
“We are negotiating with the ECB to make a different arrangement for repayment of the loan over a longer duration and at lower interest rates. We might pay more over 30 years but ... it would change our debt profile,” he said.
Asked on Thursday how much Dublin hoped to save, Noonan said: “About 17 billion over 25 years.” However, a finance ministry spokeman later clarified that that figure was the total interest due over the lifetime of the promissory note, and no specifics had yet been set out in the talks.
Noonan insisted it was not a Greek-style debt restructuring because Dublin would repay the entire amount with no write-offs.
“We would like if it (negotiations on rescheduling) was finished in calendar 2012. With the kind of arrangements we have in mind, there are advantages to having it at the back end of the year,” the minister told a small group of reporters.
That would help Ireland return to capital markets in the second half of 2013, he said, adding that the government planned to test appetite for its debt again in the summer with medium-term paper.
He declined to say what would happen about a 3.1 billion euro repayment on the promissory note due by the end of March, saying only: “It’s a long time till the end of the month.”
There was no push to get a deal before Ireland holds a referendum, probably in late May or June, on a new European fiscal compact treaty on stricter budget discipline, he said, adding it would be unwise to try to “buy out” Irish voters.
Ireland is on target with its 85 billion euro EU/IMF bailout programme, received in late 2010 after a property bubble burst and triggered the banking sector collapse.
Dublin is seen as the star pupil in the bailout class, having implemented sweeping spending cuts with minimal protests and returned to modest export-led economic growth.
Speaking after talks with French Economy Minister Francois Baroin, Noonan said the IMF supported Ireland’s case on the promissory note and the European Commission was not opposed, while the ECB “has its own view” and sought other changes. All three were now working on a joint paper on the issue.
“The changes ... will have to put us in a position that the markets will see that Ireland’s capacity to pay its debts has been enhanced and consequently that we not only get back into the market but we get back into the market at low interest rates,” he later told Irish broadcaster RTE.
Noonan said he expected to revise down the government’s 1.3 percent growth forecast for this year when he issues updated figures next month.
Noting that an average of forecasts compiled by Reuters put the estimated growth figure at 0.7 percent, he said Dublin would meet its agreed 2012 budget deficit target of 8.6 percent of gross domestic product even if that were the outcome.
“We will be revising downward as well, it’s quite obvious now, when the next revision comes up. But the budgetary target will be met,” the minister said.