A debt deal to cut the cost of Ireland's toxic bank rescue could slash 1 billion euro 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 20 billion euro over the next decade.
Project Red, as the deal was secretly known in Dublin, will see 28 billion euro 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 Irish 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, and 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%.
Also, the Government will borrow 20 billion euro less over the next decade, at least 1 billion euro less in taxes and spending cuts will be needed up to 2015 and 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 3.1 billion euro due 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 48 billion euro. Irish officials would not put a figure on how much the new arrangement will ultimately cost taxpayers.
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."