In 2010 the State made out promissory notes to Anglo Irish Bank, INBS and EBS. These notes effectively promise to pay €30.85 billion to these institutions over a number of years. Under Eurostat rules, Ireland was required to count the original note as deficit and debt impacting in 2010. Ireland's deficit and debt therefore increased by €30.85 billion in 2010 as a direct result of the promissory note agreement. As a consequence of this ruling the annual payments of principal, whether paid in cash or any other means, do not increase the debt and deficit as this amount has already been taken into account.
The interest due on the promissory note however does increase both deficit and debt. For this reason, the previous Government requested an ‘interest holiday' in 2011 and 2012. For these two years a zero rate of interest applies on the Anglo and INBS promissory notes. This means that for 2011 and 2012 there was no additional impact from the interest on the Promissory Notes on the General Government deficit. The impact on 2013 is almost €1.9 billion, or 1.1% of GDP, with a declining impact in later years as shown in Table 1 below.
The impact on the debt is different from the impact on the deficit. This is because interest falls due on 31st March each year and debt is measured at face value, whereas deficit is accrued to the calendar year. This difference is further complicated by the interest holiday. Table 1 shows the impact on the general government deficit and general government debt of the promissory note interest for 2010 to 2015.
Table 1 Impact on general government deficit and debt of interest on the promissory note
Year
|
Impact on deficit
|
Impact on debt
|
|
€m
|
€m
|
2010
|
561
|
—
|
2011
|
13
|
568
|
2012
|
13
|
13
|
2013
|
1,888
|
506
|
2014
|
1,780
|
1,847
|
2015
|
1,683
|
1,758
|
The IBRC is classified as part of the Financial Corporations sector and therefore is not directly included in the calculation of the general government deficit or debt. It was because IBRC is outside of the General Government sector that the promissory notes given to Anglo Irish Bank and the Irish Nationwide Building Society, the former entities that now comprise IBRC, were accounted for in the 2010 General Government deficit and debt returns.