2053: What does the 40-year payback mean?

After years of economic turmoil and social distress, is the new deal with the ECB a turning point for Ireland?

The deal to restructure the debts of Anglo Irish Bank clears a major political and financial hurdle for the Government as it prepares to break free of the international bailout later this year.

Although huge challenges remain to be overcome in the months ahead, the new arrangement with the European Central Bank relieves some of the debt burden on the beleaguered Irish people. The immediate impact for the public is minimal. There will be no getting away from painful new taxes on property and water, for example. This year’s budget remains intact, but some benefits will be felt from next year.

To meet European targets in the next two years, the Government had been due to cut the budget by a further €5.1 billion: €3.1 billion in 2014 and €2 billion in 2015. The Coalition now expects to reduce the total by €1 billion in that period, easing some but not all of the pressure to scale back expenditure and increase the tax take.

In a hostile political environment, with the Government’s popularity on the wane, this is welcome room for manoeuvre. As Tánaiste Eamon Gilmore revved up international pressure for a deal, the argument was quietly made in Government circles that it would be very difficult for Ministers to agree to a new swathe of budget cuts this autumn if the promissory notes were not recast.

The deal means the Government will not have to shell out €3.l billion at the end of March, nor another €3.1 billion in June to meet a liability to Bank of Ireland under an arrangement to defer last year’s bill. A further €3.1 was to fall due in March 2014, meaning the Government was faced with paying no less than €9.3 billion into a bust bank in the space of 13 months.

At the same time, a big reduction in the State’s titanic borrowing requirement in the years to come means it will be easier for the Government to persuade private investors that Irish sovereign debt is again a good bet.

The benefits here are twofold. First, the likelihood of the Government being less indebted should ease concerns about its ability to repay debt. Second, the consequent increase in demand for Irish bonds should reduce the interest the Government must pay when selling debt to investors.

“It’s not that paradise starts tomorrow. It’s not heaven on earth all of a sudden. It’s a good first step in the process towards exiting from the programme,” says a central-banking source who knows the Irish scene.

In this respect the deal should bring Taoiseach Enda Kenny and Gilmore closer to taking charge of Ireland’s affairs, and reduce the influence of the troika.

Intrusive external surveillance will be a fact of life for ever in the euro zone, so economic sovereignty is a diminished and limited thing these days. But it would still be a huge boost to take Ireland away from its morale-sapping dependence on the emergency loans of its sponsors. For the State to pay its own way again would bring clear psychological and political benefits.

It would not fix rampant unemployment or solve mortgage-loan defaults, but it might improve the conditions for tackling them.

Speculation and drama

It was a week of drama: fevered speculation in Dublin and beyond about the outlook for a major financial institution; hushed action in Government Buildings; uncertainty about the outcome; ambiguous signals from Europe; furtive whispers about a long night in Leinster House; bag-eyed TDs braying at each other at a midnight sitting of the Dáil; ardent pleas for order from a put-upon Ceann Comhairle; and President Higgins’s dead-of-night dash home from Rome to sign emergency legislation into law.

Dublin’s aim all along was to avoid making the €3.1 billion payment due next month, which necessitated a long diplomatic campaign.

Although the basic proposal to replace the notes with bonds and liquidate Anglo had been on the table since last autumn, there was no sign of a breakthrough as the new year opened.