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Daniel McConnell: Noonan deserves our support for his latest debt-reduction strategy

Can-kicking or delaying bad news has never been a strategy I have advocated. But the Government's move to delay the payment of the €3.1bn Anglo Promissory Note is absolutely the right thing to do.

In the understated manner befitting his tenure in office so far, Finance Minister Michael Noonan slipped into a near-deserted Dail chamber late last Wednesday night and dropped a bombshell.

Catching most people off guard and speaking during a Sinn Fein debate on the fiscal compact, Noonan announced that a deal to allow the Government not pay the €3.1bn to the former Anglo Irish Bank next week was all but done.

"Being progressed," was how he put it, but the significance of what he was saying was obvious.

Only days before that, Noonan said any progress would be in the "medium term", appearing to rule out any immediate victory.

For Noonan to go into the chamber and make such an announcement, significant progress must have been made and he must be confident of it coming to fruition ahead of March 31.

Written agreement in principle was given by the ECB to Noonan minutes before he addressed the Dail to allow Ireland postpone the payment, pending technical discussions to iron out the details.

That agreement had been sought by Central Bank Governor Patrick Honohan at a meeting of governors in Frankfurt earlier in the day.

While the matter will only be finalised in the coming days, Noonan and others in the Government believe it is a done deal.

Rather than make the payment next week, the State wants to issue a long-term bond that would not have to be repaid until 2025. Anglo would then cash that bond in with the European Central Bank in order to meet its funding needs.

If this materialises, Ireland's debt burden for 2012 is immediately cut by €3.1bn. A significant amount of money, but minor in the context of the country's obscene debt levels, which threaten to drown us.

Our Government has to cough up €3.1bn every year until 2023, with smaller annual payments due until 2031. The Economist magazine last week called this schedule "punishing".

Each €3.1bn payment represents around two per cent of GDP.

From 2013, the interest payments on the debt will be counted against the budget balance, placing greater pressure on the government's deficit targets, forcing it to introduce further cuts. It is unsustainable.

Thus, the rush to get some sort of a deal before the end of the month becomes clear.

We are now essentially having to endure savage budget cuts in order to pay for Anglo.

Some people, economists included, have sought to dismiss the importance of such a deal on the debt, saying it will make no difference given we have to pay the money off sooner or later.

They have dismissed it as a mere political stunt, aimed at assuaging an angry public ahead of a tricky European referendum.

While Irish ministers have been loath to directly link the referendum to any debt deal, they know very well any movement would greatly help the fiscal treaty over the line.

The Europeans know this too.

Brussels-based officials also realise that any reduction on debt repayments is the best way to assist Ireland's return to the markets next year, as scheduled.

But what the economists have also forgotten is the intangible matter of confidence.

Confidence is a precious commodity, and has been virtually absent in Ireland since our cataclysmic economic and financial crash in 2008.

What Michael Noonan is seeking to do this weekend is to buy time, breathing space, to allow some trace of confidence return to this weary little island of ours. If we can reduce the burden in the short run, it will allow us the breathing room to begin believing that the country is not still bound for disaster.

"If Mr Noonan's plan comes off it will be quite a coup. But it will still be no more than a can-kicking exercise," The Economist wrote.

Yes, but in this instance, given we are drowning in our debt, such can-kicking is justified.

Yet, the deal on this promissory note is only the first step in a much bigger fight. The next step is to see a way to swap out the remaining €27bn left to be handed over. This most likely will be done by tapping into the European Financial Stability Facility, the eurozone's temporary bailout fund. Even bigger, the ECB must sooner or later countenance actual debt reduction in the case of Ireland, as recommended by John Teeling, former CEO of Cooley Whiskey, last Tuesday.

From speaking to him regularly, it is clear Noonan has one simple plan as Finance Minister.

By the time he leaves the department, he wants to have restored meaningful growth to the Irish economy and he wants to have succeeded in restoring Ireland's economic sovereignty and waved goodbye to the troika.

He is still a long way from achieving that, but this deal on the promissory notes is a welcome first step in reducing the bank burden on our shoulders. Noonan deserves our support.

Sunday Independent