Deal cements coalition legacy: Debt is dead, long live the debt

They resisted rising to their feet on the government benches as they broke into delirious applause not once but six times when the details of the long-awaited Anglo debt deal were presented to the Dáil.

The tensions that had grown more fraught as the weeks dragged on, and the burden of uncertainty that had weighed so heavily on the shoulders of Cabinet ministers, was lifted.

The €3.1bn promissory note payment that hung over them like a dark cloud, drifted away — averting a thunder storm for now, but storing sustained rainfall for some time in the distant future.

After 18 months of technical and often fraught negotiations with the ECB, a deal that is hailed and hated in equal proportions was announced by Taoiseach Enda Kenny.

The secret of what was coded “Project Red” — closely guarded by Finance Minister Michael Noonan and just three others in the Government — was out.

Another chapter was closed on the dreary financial crisis.

There are many reasons to be unhappy with what has been agreed: It confirms, once and for all, that the villainous bondholders who lent to Anglo at their own risk will be paid back. There is no longer any hope of burning them.

The debt owed to them was officially passed on to the sovereign state of Ireland under the deal, which converted the promissory notes into a government bond.

Noonan said he did not ask the ECB for a debt writedown because there was no chance it would have allowed it.

So why all this cause for celebration?

While the Irish people are now more tied into the bank debt than before, the payments will be made easier by pushing them out into the future, when inflation should have made them less cumbersome.

More importantly than this, there will be many knock-on effects of the deal that will have immediate benefits in helping to restore the public finances.

It will cut the budget deficit, possibly ease the pain of the next two budgets, and — most importantly — put the country on a better track to end its reliance on the EU/IMF bailout and policy structures that come with it.

All of this is precisely the economic narrative the Coalition had hoped for during its term in office.

And so — although it falls short of what they promised in relation to bondholders in the 2011 general election — it did mark a triumph for Kenny, Noonan, and both Fine Gael and Labour.

Their credibility — up until yesterday — had been on the line. Last month, the Taoiseach told the Dáil he did not contemplate not getting a deal. Labour was bolder in its assertions, with Communications Minister Pat Rabbitte insisting the €3.1bn would not be paid in March if a deal was not reached. His party leader, Eamon Gilmore, said failure to reach agreement would be “catastrophic”.

The gamble they made by betting their entire reputation on the deal has paid off, and will yield a payback likely to see them through to the next general election.

The Coalition believes this deal is sellable as far as public perception is concerned and is confident of reaping the political rewards.

Making the announcement in the Dáil, Kenny said the deal was a “historic step on the road to economic recovery”.

In a speech greeted with sustained applause, he hailed the deal as a “step forward in accelerating our path back to economic recovery and renewed job creation”.

The Government will be cautious about overselling this as something that will reduce the burden of the remaining austerity budgets. The gap between borrowing and spending still has to be bridged, though it will be eased somewhat.

For a start, the plan will lead to less borrowing by the State over the coming years — by something in the region of €20bn over the next decade.

The average interest rate on the new bonds will begin at just over 3%, compared with a rate well over 8% on the promissory notes. This will result in a reduction in the deficit and “bring us €1bn closer to attaining our 3% deficit target by 2015”, said the Taoiseach.

“This means that the expenditure reductions and tax increases will be of the order of €1bn less to meet the 3% deficit target.”

The deal will also “improve perceptions of our debt sustainability in the eyes of potential investors in Ireland”, which will lead to lower interest rates on private market borrowing.

This would, most certainly, ensure our exit from the bailout this year — something that would probably define Noonan’s long political career.

Despite its many failings and the overall failure to get a debt writedown, this deal will be considered a success for the Coalition.

Yes, it has anchored the bank debt to generations of people who were not even born when Anglo came close to bringing down the country.

But that will be long after the 2016 generation, when Noonan, Kenny, and their applauding backbenchers will have sailed well into the sunset.

The debt is dead, long live the debt.