Coalition held its nerve when others despaired

“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,” said Kenny, hinting at easier budgets ahead.

He also pointed out that the deal should improve perceptions of our debt sustainability in the eyes of potential investors in Ireland, leading to lower interest rates and faster growth than would otherwise be the case but, despite his reference to easing the requirement for extra taxes and spending cuts, he did not pretend that it was a silver bullet to end all our economic problems.

“Even as the lower interest rates resulting with this agreement reduce Ireland’s deficit, a very large and unsustainable gap between Government revenues and spending remains to be fixed, a gap unrelated to our banking crisis.

“Only we in Ireland can fix this problem by reforming the way our State and country works.”

This is the challenge now facing Government TDs. The deal on promissory notes does not absolve them of standing by decisions already made to find further savings in the public service pay bill and to implement unpopular measures like the introduction of a property tax and water charges.

The yawning gap between revenue and spending still remains to be bridged.

While the easing of the debt terms should have some impact on the budgetary arithmetic over the next three years, both Government parties will have to live with further tough decisions.

Bailout exit

The deal should pave the way for Ireland’s exit from the bailout before the end of the year and that will certainly be an achievement for the Coalition to boast about. European Commission vice-president Olli Rehn noted that market conditions for Irish bonds had been improving, and the deal on the promissory notes should improve confidence and help facilitate the country’s exit from the EU-IMF programme as planned.

However, that won’t remove the requirement for the State to borrow, as Micheál Martin pointed out in the Dáil.

The difference will be that instead of the EU/IMF providing the funds they will come from the international bond markets.

In order to keep funding costs at affordable levels, the Government will have to convince the markets that it is going to keep its borrowing at or below the 3 per cent threshold agreed for the bailout and that will impose its own disciplines.

The nature of the deal on the promissory notes has reinforced the image of the competence which the Coalition wishes to give off and that will certainly be a help on international markets.

Persuading the electorate to appreciate that quality will be the real challenge, but for the present Government TDs have something to cheer about.

* Stephen Collins is political editor