Government: Project Red 'means €20bn less in borrowings'
Published 07/02/2013 | 15:13
A DEBT deal to cut the cost of Ireland's toxic bank rescue could slash €1bn from tax hikes and spending cuts in upcoming budgets, the country's leaders have claimed.
Taoiseach Enda Kenny said the agreement was not a silver bullet but declared that it would reduce state borrowing by €20bn over the next decade.
Project Red, as the deal was secretly known in Dublin, will see €28bn worth of costly IOUs from the nationalisation of Anglo Irish Bank swapped for long term sovereign bonds.
"Step-by-step, this Government is undoing the disastrous banking policies that brought this state to the brink of national bankruptcy," the Taoiseach said.
"The agreement has reduced Ireland's vulnerability from the huge debts taken on by Irish taxpayers as a result of the cost of rescuing failed private banks."
The Government did not ask for a write down on the Anglo debt during negotiations with the European Central Bank (ECB).
"We always said that we were not looking for any write downs. Anybody who knows the European situation knows that the ECB does not do write downs," Finance Minister Michael Noonan said.
Under the scheme:
- None of the capital borrowed will be repaid before 2038 when the first bond matures.
- A floating interest rate of between 3-3.5% will be imposed on the bond which, due to money moving in and out of the Central Bank of Ireland, will have an effective rate closer to 1%.
- The Government will borrow €20bn less over the next decade.
- At least €1bn less in taxes and spending cuts will be needed up to 2015.
- The final bond will not mature until 2054.
The arrangement, unanimously backed by ECB chiefs at their meeting in Frankfurt, cancels annual debt repayments of €3.1bn next month and every March for the next 10 years for the collapse of Anglo.
Mr Kenny said failure to secure a deal on the debt, known as promissory notes, would have meant repayments totalling €48bn.
Irish officials would not put a figure on how much the new arrangement will ultimately cost taxpayers.
Mr Noonan said that the burden of austerity would ease slightly over the next two years on the back of the deal.
"For the man and woman on the street it means they and their families won't have to carry the burden of another 20 billion euro in borrowings over the next 10 years," he said.
"What it means for the ordinary family, one billion euro less will be taken from them in terms of taxes and expenditure cuts."
The deal was announced hours after the Government secured legislation to allow for the rebranded Anglo, the Irish Bank Resolution Corporation (IBRC), to be liquidated.
It also coincided with a report on the ninth review of Ireland's bailout from the Troika of the European Commission, the ECB and the International Monetary Fund.
Mr Noonan said the potential one billion euro savings up to 2015 will be discussed with the Troika.
They credited the country for a strong track record of meeting bailout conditions and predicted a return to international money markets at the end of the year.
The next review mission is scheduled for April 2013.
Sinn Fein refused to accept that the revised repayment plan was a success for Ireland.
"It is effectively a double of the amount of money that will be paid back," the party's finance spokesman Pearse Doherty said.
The debt deal was announced after the Government rushed through emergency legislation overnight to allow for the liquidation of the rebranded Anglo.
Some 800 workers have had contracts terminated but many will be retained when the state's bad-bank, the National Asset Management Agency, takes over Anglo debts.
All prosecutions and legal actions in relation to the collapse of Anglo will continue despite liquidation.
President Michael D Higgins flew out of Rome, where he was on an official visit, to sign it into law before the money markets opened and risked a flight of assets.
IBRC held €12-€14bn of assets.
Brendan Howlin, Minister for Public Expenditure and Reform, said the delicate negotiations were about reversing the crippling promissory note scheme, introduced in the final months of the previous coalition government.
"From an economic perspective, it was a uniquely bad way of saddling debt on the Irish people," he said.
Mr Howlin said the long-term nature of the new bond would allow Ireland time to recover its reputation among the world's money markets.
"34 years - it gives us space to get back into the markets with confidence and for people to look to us with confidence," he said.
Richard Boyd Barrett, of the left-wing People Before Profit, described the deal as akin to a three card trick.
"This deal seals the fact that these debts have been fully socialised, that is transferred as a burden onto the Irish people," he said.
Later, the Central Bank of Ireland said it will not suffer any losses as a result of the deal.
"The bonds will be placed in the Central Bank's trading portfolio and sold as soon as possible, provided that conditions of financial stability permit," it said.
"The disposal strategy will of course maintain full compliance with the treaty prohibition on monetary financing."