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A huge burden is lifted -- now it is up to us

The agreement reached by European leaders early yesterday morning, allowing the European Stability Mechanism to directly recapitalise failing banks, is the best piece of economic news this country has received for a long, long time.

Indeed it stretches back to the previous government's disastrous decision to unconditionally guarantee the deposits and bonds of the Irish-owned banks in September 2008.

Ever since the bank guarantee this country has been running faster and not even standing still as the ever-mounting cost of bailing out the banks, now up to €63bn, more than wiped out the effect of any spending cuts or tax increases.

Five hairshirt Budgets, which between them had taken at least €25bn out the economy, were set at nought by the mounting burden of bank debt.

Friday morning's agreement gives us the opportunity to step off this fiscal treadmill.

By allowing the ESM to invest directly in failing banks and backdating the deal to include the Irish banks, Irish government debt stands to be reduced by up to €64bn.

That's a third of the projected year-end figure. Even if the ESM only assumes responsibility for the €43bn which the Irish government borrowed to pump into the banks rather than the €20bn which came from the National Pension reserve fund, the government debt would fall by almost one-fifth.

Suddenly after almost four grim years of toil and trouble the outlook has begun to improve. We can begin to hope once again.

Ever since this Government first came to office almost 16 months ago it has worked hard to reverse the most objectionable features of the November 2010 EU/IMF bailout.

This includes not least the fact that the Irish taxpayer was left to shoulder the entire burden of the bank bailout which had largely benefited overseas, mainly British and mainland European banks, who despite lending so recklessly to their Irish counterparts, were repaid in full.

Almost a year ago the Government successfully negotiated a halving in the bailout interest rate to 3pc, an achievement for which it deserved more credit than it received.

Addressing the issue of bank debt has taken longer, not helped it must be said by several premature announcements from government ministers which only succeeded in rubbing our European partners up the wrong way.

However, the latest deal has the look and feel of the real McCoy. With the ESM set to assume responsibility for our bank-related debts we finally have an opportunity to restore order to the public finances once and for all.

In the midst of all the euphoria generated by yesterday's good news from Brussels it was easy to lose sight of the underlying fact that, even when bank-related costs are excluded this country is still spending in excess of €10bn more every year than it collects in taxes.

Regardless of what happens to our bank debt that gap still has to be closed either through tax increases or public spending cuts or, as is most likely, some combination of the two.

With a state that still largely reflects long-vanished Celtic Tiger levels of revenue and expectations, Ireland Inc continues to live way beyond its means. In the new age of austerity that's no longer an option.

Even if the bank-related debt was to completely disappear overnight the need to cut our cloth to suit our much-reduced measure would remain.

This will entail further painful decisions about both public spending and taxation in the December 2012 Budget and in future Budgets.

But now at least we have the opportunity of regaining control over our own destiny. With all or most of the bank debt being "parked" with the ESM we can focus all of our attention on addressing the fiscal excesses left over from the boom years. We can do so without the added burden and distraction of bank debt.

Taoiseach Enda Kenny, Tanaiste Eamon Gilmore and Finance Minister Michael Noonan deserve congratulations from all of us for their achievement in finally resolving this sometimes thorny issue.

We can go forward without being burdened by legacy bank losses from the Celtic Tiger era. Now it's up to us.

Irish Independent