The Central Bank will have to bring forward dividend payments to facilitate the Minister for Finance's plan to use €610 million (£480 million) of its reserves to balance his Budget. Some €240 million of the money Mr McCreevy is asking for will come from a potential windfall profit on the introduction of euro notes next year. Normally any such profit would not be paid to the State, in the form of a dividend, until spring 2003, after the end of the bank's financial year.
But for Mr McCreevy to apply the cash to his 2002 Budget, the dividend will have to be paid over before the end of this year. The Bank has only had to do this twice before, both times during what were essentially national crises. The first time was to part-fund the the rescue package for the Insurance Corporation of Ireland and AIB in 1984. It was requested again in the late 1980s by Mr Ray MacSharry, when he was finance minister, as part of a package to stave off economic collapse.
The balance of the €610 million will come through the transfer of the "seigniorage" or right to the significant profits made from minting coins to the Exchequer. This change will require legislation and the European Central Bank (ECB) said yesterday that it would have to be consulted on any such legislation to ensure it complied with EU law.
The ECB is unlikely to object to the transfer of the "seigniorage" to the Exchequer as this is common practice in other EU states.
It might, however, object to the handing over of the reserves of €370 million built up since 1948 through the issue of coins. The Central Bank confirmed yesterday that the ECB would vet the proposed legislation, but declined to comment on what position it might adopt.
A Central Bank spokesman also confirmed that no legislation would be required for the Bank to hand over the once-off profit on the issue of euro notes. It will however require the approval of the board of the Bank, as will the decision to pay an early dividend.
The members of the board are Government appointees and include Mr David Begg, the head of the Irish Congress of Trade Unions, and Dr Martin O'Donoghue, the economist and former Fianna Fβil minister. Other members include the businessmen Mr Donal Byrne, Mr Roy Donovan and Mr Friedhelm Danz. The barrister Mr Gerry Danaher is also a member.
The board is not likely to discuss the matter until February or March, when the changeover is complete. The expected windfall is the value in euros of all the Irish bank notes that the Central Bank does not expect to be exchanged for euro notes. If it considers it prudent, the Bank can reduce its reserves by this amount and pass the money on to the Exchequer.
The decision to bring forward the 2003 dividend payment into 2002 will put further strain on the Exchequer in 2003, when the Government is now predicting a deficit of 0.5 per cent of Gross National Product.
The other once-off funding measures used by Mr McCreevy to balance his 2002 Budget are unlikely to be available to Mr McCreevy or his successor when it comes to framing the 2003 budget.
They include dipping into the Social Insurance Fund that has been built up from surplus PRSI contributions. The Minister will also have to bring forward legislation to allow him transfer €635 million out of the €1.4 billion surplus across to the Exchequer.
The European Commission said yesterday that it had no comment at this stage on the Budget and that it was up to individual states to decide how they deal with any windfall that might arise from the changeover to the euro. "There is no element of us having an opinion or not on this aspect," a Commission spokesman said.
"As with all members-states, we are not going to make any comment at this stage on the Irish budget proposal. We are waiting for Ireland to deposit its stability programme and we will examine their stability programme in due time," he said.
Additional reporting: Reuters
