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In deal-making, simple and effective beats complexity

THE plan to cut the country's debt servicing costs by paying back IMF loans early is simple and effective.

For anyone who has followed the machinations of Irish government efforts to grapple with the aftermath of the banking crisis, that is a mercy in its own right.

In the dark days of the crisis we got used to the Government coming up with schemes more notable for their complexity than for their effectiveness - Anglo Irish Bank Promissory note anyone?

There is none of bend-over-backwards-put-your-left-foot-on-your-right-shoulder-and-do-long-division-in-your-head type nonsense in the new plan.

The scheme Michael Noonan and the Government are pursuing will do what businesses and households do all the time - refinance expensive loans with a cheaper debt provider.

We borrowed from the IMF when no one else would lend to us, but, because their funds are really only for emergencies, the interest rate on the loans goes up the longer we hold onto them.

It is now almost 5pc and on €22.5bn of debt that is in or around €1bn a year.

Improved conditions in the bond markets generally, and Ireland's restored credibility as a borrower, mean we can raise cash on the bond market at a fraction of that price - less than 2pc a year based on last night's market prices.

Switching one for the other is a no-brainer. The catch was that under the terms of the bailout we weren't allowed to repay the IMF without paying back an equal share of the other bailout loans.

Those loans are cheaper and much longer term than the IMF debt, so repaying them early doesn't suit.

The solution, which is pretty well done and dusted, was to request a waiver. It cost the Europeans nothing - they still get their loans repaid on the old schedule, and indeed according to the head of the main bailout fund it's good for their Irish "investment."

It now looks like every one is on board, and with no losers why wouldn't they be?

Criticism of the scheme, and there has been some, is focused less on what it is and more on what it is not.

Refinancing the IMF loans does not reduce the size of the national debt.

A deal that might do that would be the one we have not secured; agreement that the European rescue funds would pay Ireland some or all of the €64bn in cash we pumped into the banks between 2008 and 2011.

In July of 2012 there appeared to be a real prospect that when German Chancellor Angela Merkel declared that Ireland was a "special case".

Officially, Enda Kenny and Michael Noonan are still pursuing that but there are few true-believers left who think it is a realistic prospect.

Ironically, that is in part because, from outside Ireland, our falling unemployment rate and growing economy are looked at fairly enviously by countries struggling with their own stagnant economies. In an EU where many countries are poor and becoming poorer wringing hard cash, as opposed to concessions like the one to refinance the IMF debt, out of them has proved a negotiation too far.

Irish Independent