Buried in the terms of the latest buyback of AIB bonds is an explicit attempt to reverse the 'hierarchy of credit'.
Doesn't sound like much, does it?
Well how about saying that the Government have attempted to establish a precedent that would, potentially, invalidate every contract in the country. Does that get your attention?
You can read more of the details here and here.
The Government appears to have tried to slip through a change that would allow it to pay whom it chooses to pay and to not pay others if it chooses not to, despite any previous contracts entered into. It seems as if the Government has decided to try to empower itself to selectively not repay the interest on some bonds, while paying the due return on the preference shares issued to the NPRF for the stake in the banks that was forced into the NPRF.
This would set a ground-breaking precedent. Appeals have already been lodged and are due to be heard on Monday next. It the Government doesn’t have its way, it will be a huge climb-down for them. Equally, it seems unlikely that a successful appeal would be greeted with equanimity by the Troika. Something has to give.
Arthur Doohan is a former banker currently promoting a public policy debate on alternative solutions to the debt crisis in Ireland and to bank restructuring