Donal O’Donovan: We're still a great deal away from promised land
EUROPEAN finance ministers are finalising a scheme that will give Ireland more time to pay back a share of the €64bn in EU/IMF bailout loans that have kept the State afloat. Great, or is it really? Here's what you need to ask:
• So Michael Noonan has finally got the promised deal from Europe to cut the cost of bailing out the banks?
No. This new deal we're talking about now is separate from negotiations over the banks.
It relates to around €17.7bn of loans from the European Financial Stability Fund, one of the three main bailout funds. As things stand that debt starts falling due in 2015, and we'll still be paying it back in 2041. The plan is to give Ireland more time to repay that portion of government debt.
• What good is that?
It should mean we have to set aside less taxpayers' money for debt repayment, and borrow less each year. But it means we'll be paying interest over a much longer period.
• So it's not the greatest deal on Earth, but it will save us billions.
That's a stretch. The deal we're talking about won't cut anything off the amount that is owed.
The suggestion is that without this change we'll end up borrowing money at a high interest rate on the markets just to repay these bailout loans. That is actually very difficult to predict. One thing to watch is if we're given a really long time to pay these loans off – say 50 years. In that case we could hope inflation shrinks the real size of the debt, so that today's worryingly big debt becomes the next generation's minor irritant.
Who knows, by 2063 the €17bn could be no more than the taking from a mid-sized First Holy Communion.
• Very droll, so this isn't very important?
It's a bit of a break, but certainly not a breakthrough. For a real breakthrough we need something much more comprehensive – ideally a clean break in the link between the State and the banks, including a refund on some of the billions we sunk into bust banks
• And the Government assures us that we're almost there on that?
They do, but if anything we're actually getting further away.
In Brussels this week Michael Noonan admitted that he's not likely to get Europe to take over the full stake in the bailed-out banks.
He's suggesting that our partners will want taxpayers to retain some of the risk associated with the banks.
That suggests a much less clean break than we've been chasing.
Of the €64bn the State has borrowed under the bailout, around €41bn ended up being sunk into rescuing banks, alongside money we had in the National Pension Reserve Fund. So, if the rest of Europe is serious about cutting a better deal for Ireland it would be based on shifting responsibility for paying back some of that €41bn from taxpayers to the banks, rather than shifting some of the debt down the road. In return, the European bailout fund will get to own the banks.
• Lucky them. Surely, though, this deal is a signal that the rest of Europe finally accepts that Ireland really is a "special case" and needs help?
Not even close, Ireland, Portugal and Greece will all get the same deal.
Once the full 27 members of the European Union agree, all three countries will be given more time to repay their a share of their bailout loans.
• But it is good news?
It is good news, just not great news.