Business Irish

Monday 19 February 2018

Deal to save €43bn on bailout loans on the cards

Finance ministers to consider terms


The Government could nail down a €43bn debt deal in early March – only weeks after renegotiating the cost of the bailout of the former Anglo Irish Bank.

Economists believe the Government may strike a deal to give Ireland more time to repay its €67.5bn of bailout loans at a meeting of European finance ministers on March 4.

"It's not unthinkable a decision could be taken [to extend the terms of the bailout loans] at that meeting – if not soon thereafter," said Conall MacCoille, chief economist with Davy. "Extending EU/IMF funding could reduce funding needs by €43bn."

Dermot O'Leary, chief economist at Goodbody Stockbrokers, said he expected the Government to reach a deal to extend the term of the bailout loans "over the next two months".

O'Leary last week disputed the Government's claim that the Anglo deal would save the State from borrowing €20bn over the next decade. O'Leary believes the funding benefit to the State is half what the Government has claimed.

Seamus Coffey, a lecturer in economics at University College Cork, said the Anglo deal saves the Government about €4bn in interest.

"Under the old promissory notes deal, the State was due to pay about €27bn of interest to external parties over the next 20 years," said Coffey. "Under the new arrangement, that has been reduced to €20bn.

"Because a lot of this savings takes place in the future, the value of that in today's money is equal to €4bn. The €20bn figure the Government has bandied about is correct – but it is a reduction in our borrowing requirement over the next 10 years rather than a savings."

Under the latest debt deal, the Government swapped the promissory notes – also known as IOUs – used to bail out the former Anglo Irish Bank with long-term government bonds.

"Just because we are not paying out on the bonds now does not mean we are never paying out on them," said Coffey last week.

Asked if the Government had misled the public about the benefits of the Anglo debt deal, a spokesman for the Department of Finance said: "The State will be borrowing €20bn less cash over the next 10 years due to the cashflow benefit of this arrangement. This is a simple fact."

The Anglo deal is just part of a three-pronged approach being taken by the Government to tackle Ireland's massive debt. As well as extending the term of Irish bailout loans, the Government is trying to get Europe's new bailout fund, the European Stability Mechanism, to shoulder the cost of recapitalising the Irish banks.

"The Irish taxpayer has so far borne the cost of the bank recap," said O'Leary. "Getting the European Stability Mechanism to carry the cost of the recap is a contentious issue, however. The Government has major hurdles to cross before it can get to that point."

Irish Independent

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