A bank debt deal that will reduce the country’s borrowing needs by €20 billion in the coming decade and ease budget pressures over the next two years was unveiled by Taoiseach Enda Kenny in the Dáil yesterday.
There was sustained applause from Fine Gael and Labour TDs for the Taoiseach when he sat down after outlining the agreement with the European Central Bank (ECB) to the chamber.
The announcement came after 24 hours of political drama which saw emergency legislation to liquidate the Irish Bank Resolution Corporation (IBRC), formerly Anglo Irish Bank and Irish Nationwide Building Society, being rushed through the Oireachtas early yesterday morning.
The Cabinet met at 2pm yesterday to approve the complex deal agreed earlier with the European Central Bank after months of negotiations.
Mr Kenny came into the Dáil immediately afterwards to announce that, under an agreement with the ECB, the controversial promissory notes were being exchanged for long-term Irish government bonds with maturities of up to 40 years.
“The remnants of Anglo Irish Bank and Irish Nationwide, stains on our international reputations and dents to our national pride, have now been removed from the financial and political landscape. Their closure bookends a tragic chapter in our country’s history,” he said.
Central Bank governor Patrick Honohan said the plan to liquidate IBRC was considered “from a long way back”.
After the deal was announced yesterday, the yield on Irish benchmark 2020 bonds fell as low as 3.955 per cent, the lowest seen in an equivalent Irish benchmark bond since early 2007, before the subprime crisis started, according to Reuters data.
Last payment in 2053
In the Dáil Mr Kenny said the first payment of principal under the new deal will not now be made until 2038 and the last payment will be made in 2053. The average maturity of the Government bonds will be over 34 years as opposed to the seven to eight year average maturity on the promissory notes.
“In effect, we have replaced a short-term, high interest rate overdraft that had to be paid down quickly through more expensive borrowings, with long-term, cheap, interest-only loans,” said Mr Kenny.
He said that as a result of the deal there would be a €20 billion reduction in the National Treasury Management Agency’s market borrowing requirements in the next decade with a very large reduction in the debt servicing costs of the State over the next generation.
The Taoiseach said the agreement would bring the country €1 billion closer to attaining our 3 per cent deficit target by 2015. “This means that the expenditure reductions and tax increases will be of the order of €1 billion less to meet the 3 per cent deficit target,” he said.
However, the Taoiseach added that the deal did not represent a silver bullet to end all the country’s economic problems.
Giving a guarded welcome Fianna Fáil leader Micheál Martin said Ireland deserved a fair deal but the question was whether this deal had gone far enough and whether it would affect people in terms of their taxes and services.
Horrendously damaging
At a symposium in Frankfurt to honour his deputy governor, Stefan Gerlach, Mr Honohan yesterday described the Anglo Irish Bank episode as “horrendously damaging” for Ireland.
He said he had “quite a lot of sympathy” for people involved in the 2008 bank guarantee. “Some should have been better informed, some should have had better advice, some shouldn’t have jumped to conclusions, some shouldn’t have been so arrogant and over-confident.”
He reminded his audience that Ireland was a triple-A market darling and its banking problems were initially dismissed as natural aftershocks from Wall Street turbulence. The Irish government decided to “guarantee everything, with no shilly-shallying around”.
“Did the ECB recommend that? I am sure they didn’t, though nobody knows,” said Mr Honohan, who joined the Central Bank and ECB governing council a year after the guarantee. In hindsight, he said it would have been “best practice to have given a limited guarantee. If they’d known Anglo Irish would be so bad they should have been closed there and then with losses to depositors.”
