Turning point as €20bn is wiped off our debt burden
Budgets can be less austere as Coalition is given €1bn leeway
Published 08/02/2013 | 04:00
A GROUND-BREAKING deal to relieve the nation’s crippling debt has given the State a €20bn cash flow boost and strengthened hopes of economic recovery.
The long-awaited Anglo deal stretches the cost of bailing out the toxic bank for up to 40 years instead of 10, with the final repayment not due until 2053.
In a boost for weary taxpayers, Finance Minister Michael Noonan confirmed he would be using the interest savings to reduce Budget pain by €1bn over the next two years.
“What it means to the ordinary family is that there will be €1bn less taken from them in terms of taxes and expenditure cuts over that period,” he said.
The Government warned that this was not a magic solution to all the country’s problems. There are still painful tax rises and spending cuts ahead for families.
But it is seen as a political victory for the Fine Gael-Labour Coalition, which has been under intense scrutiny over its ability to strike a deal on the Anglo debt.
“Today’s outcome is a historic step on the road to economic recovery,” Taoiseach Enda Kenny told the Dail.
After a dramatic 24 hours, the European Central Bank approved the complex deal following months of persuasion and negotiations.
The arrangement was unanimously backed by ECB chiefs at their meeting in Frankfurt yesterday.
Project Dawn, as the deal was secretly known, will see €28bn of costly IOUs from the nationalisation of Anglo Irish Bank swapped for long-term sovereign bonds.
The promissory notes, which had to be repaid over the next 10 years, will now be replaced by government borrowing carrying a lower interest rate and repayable over a much longer period
"Step by step, this Government is undoing the disastrous banking policies that brought the State to the brink of 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."
Under the scheme:
• None of the capital borrowed will be repaid before 2038 when the first bond matures.
• The final bond will not mature until 2053.
• A varying interest rate of between 3pc and 3.5pc will be imposed on the bond, which will be an effective rate closer to 1pc.
• The Government will borrow €20bn less over the next decade.
• About €1bn less in taxes and spending cuts will be needed up to 2015.
The Government is not revealing the total cost of paying back the Anglo debt plus interest by 2053. It is expected to be far in excess of the original €47bn bill that had been due to be paid within the next 10 years.
But Mr Noonan insisted that the final bill would be significantly lessened when it fell due as a result of the impact of inflation and economic growth.
Delighted Government backbenchers applauded the deal in the Dail. There was further applause afterwards for Mr Noonan at the Fine Gael parliamentary party meeting, and for Tanaiste Eamon Gilmore and Public Expenditure Minister Brendan Howlin at the Labour Party meeting.
Mr Gilmore said: "We are tearing up the promissory note and we have wiped Anglo Irish Bank off the map."
The Opposition criticised the fact the Government had failed to get a write-down on the remaining Anglo debt.
But Mr Noonan said it would have been "pointless" to ask for a write-down because the European Cental Bank was never going to grant it. "We always said we were not looking for write-downs. Anybody who knows the European situation knows the ECB does not do write-downs," he said.
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.
A Government source said the cost of the former Anglo, which was no longer lending, had been an issue. Chief executive Mike Aynsley was paid €663,000 – a €500,000 salary, allowances of €38,000 and a pension sum of €125,000. "There are substantial cost reductions for us. Anglo is an expensive place to run," said the source.
All prosecutions and legal actions in relation to the collapse of Anglo will continue despite liquidation.
Jobs Minister Richard Bruton said the new deal would make it easier to go into boardrooms from "Boston to Beijing". And the markets responded by lowering the State's borrowing costs to levels last seen before the global financial crisis blew up in 2008.
This has increased the State's chances of being able to exit the bailout programme at the end of the year and regain economic sovereignty.
Fianna Fail leader Micheal Martin, whose previous Government negotiated the expensive Anglo promissory note deal, said he welcomed any easing of the country's debt position.