Deal will see budget cuts eased by €1bn

The impact of the next two budgets will be eased by €1bn as a result of the bank debt deal, which was hailed as a “historic step” by Taoiseach Enda Kenny.

The deal was announced in the Dáil following a meeting of the Cabinet and an all-night sitting of the Oireachtas to push through legislation to wind down the former Anglo Irish Bank.

To sustained applause from the Government benches, Mr Kenny said “step by step” his administration was “undoing the disastrous banking policies that brought this State to the brink of national bankruptcy”.

Under the deal, the promissory note structure used to pay back bondholders will be replaced by government bonds with maturity dates averaging 38 years.

It averts the €3.1bn promissory note payment which was due at the end of March. Instead, the first principal payment will be made in 2038 and the last payment will be made in 2053.

“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.

The deal was given a cautious welcome by Fianna Fáil while others on the opposition benches questioned why the Coalition did not seek a debt writedown instead of transferring the debt to the sovereign state.

Finance Minister Michael Noonan said the ECB had never given a writedown to any country. “Even though there were major discounts on Greece, which was a uniquely, special, tragic case, the writedowns were in private debt,” he said.

“No writedown was given under any circumstances on what was owed to the ECB.”

Tánaiste and Labour leader Eamon Gilmore said the deal was a “watershed” and that the Coalition was “righting the wrong that was done to the Irish people more than four years ago”.

Mr Kenny said the agreement will result in a “substantial improvement in the State’s debt position over time” and mean it will now have to borrow €20bn less over the next 10 years.

The average interest rate on the new bonds will begin at just over 3%, compared with an interest rate of 8% on the promissory notes, he said.

This will result in a reduction of the deficit — or gap between income and spending — by €1bn. So the planned budget cuts of €3.1bn for 2014 and €2bn for 2015 can be reduced by €1bn in order to reach the 3% deficit target.

The new plan will also improve perceptions of our debt sustainability in the eyes of investors to Ireland, Mr Kenny said, thus easing our exit this year from the EU/IMF bailout.

“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,” said the Taoiseach.

“Today’s outcome is an historic step on the road to economic recovery.”

He also told the Dáil that ministers will keep moving to recover as much of the taxpayers’ money as possible from the other financial institutions bailed out by the State.

The Dáil will debate the proposals next week. Although a vote is not needed, the Government will agree to one if requested by members of the opposition.