Kenny says ECB deal could cut borrowing by €20 billion
A debt deal to cut the cost of Ireland’s toxic bank rescue could slash €1 billion from tax hikes and spending cuts in upcoming budgets, the Government has claimed.
Taoiseach Enda Kenny said the agreement was not a silver bullet but declared that it would reduce state borrowing by €20 billion over the next decade.
“Step-by-step, this Government is undoing the disastrous banking policies that brought this state to the brink of national bankruptcy,” the Taoiseach said.
“The agreement has reduced Ireland’s vulnerability from the huge debts taken on by Irish taxpayers as a result of the cost of rescuing failed private banks.”
The Government did not ask for a write-down on the Anglo debt during negotiations with the European Central Bank (ECB).
“We always said that we were not looking for any write downs. Anybody who knows the European situation knows that the ECB does not do write downs,” Minister for Finance Michael Noonan said.
Mr Kenny said the liquidation of the IBRC had caused the Central Bank to assume full ownership of the €25 billion in promissory notes and other collateral held as security for the funds provided by the Central Bank to the IBRC.
Arriving in Brussels this evening for a meeting of EU leaders, the Taoiseach said it was a “good day for Ireland.”
Mr Kenny said he planned to “explain to leaders when it is appropriate” the nature of the agreement and the arrangement arrived at for Ireland, which was “very much in the Irish people’s interests”.
He said the promissory note deal was “recognition of where there clearly is evidence of a government and a people working together in taking on challenging positions, that that challenge can be rewarded by co-operation and assistance from our European partners.”
He said that other restructuring regarding legacy bank debt was “a different argument for a different day.” .
Under the agreement reached today with the ECB, the promissory notes are being exchanged for long-term Irish Government bonds with maturities of up to 40 years. The first principal payment will not now be made until 2038 and the last payment will be made in 2053.
Mr Kenny said earlier the average maturity of the Government bonds would be over 34 years, as opposed to the seven to eight-year average maturity on the promissory notes.
In effect, they have replaced a short-term, high-interest rate overdraft that had to be paid down quickly through more expensive borrowings with long-term and cheap interest-only loans, he added.
He said the Central Bank would take ownership of the €3.4 billion bond used to settle to the promissory note last March. As a result, there would be a €20 billion reduction in the NTMA’s market borrowing requirements in the next decade. The average interest rate on the new bonds would begin at just over 3 per cent compared with an interest rate of well over 8 per cent on the promissory notes.
This, he added, would result in a reduction in the States general Government deficit of approximately €1 billion per annum over the coming years.
“Today’s outcome is an historic step on the road to economic recovery,” said Mr Kenny. "Step-by-step, this Government is undoing the disastrous banking policies that brought this State to the brink of national bankruptcy."
However, he warned the deal was not a “silver bullet” for Ireland. “We still have along way to travel back to prosperity, the damage done by financial institutions will take many years to rectify,” Mr Kenny said.
The deal “removes a considerable burden from the shoulders of our people”, Tánaiste Eamon Gilmore told TDs.
“This package of measures will make a marked difference to Ireland’s debt sustainability,” he said.
Last night, the Government introduced emergency legislation to allow for the liquidation of Irish Bank Resolution Corporation, the former Anglo.
The ECB discussed the move at its monthly meeting in Frankfurt. After the meeting, ECB president Mario Draghi declined to confirm whether or not a deal has been agreed with Ireland, saying it was a matter for the Irish Government. Asked if a deal had been reached with Dublin, Mr Draghi said the ECB "noted" the actions of the Government. “The ECB governing council unanimously took note of the Irish operation and I am going to refer you to the Irish Government and the Irish Central Bank for the details of this operation which was designed and undertaken by the Irish Government and the Irish Central Bank,” he said. “I can only say today that we took note of this.”
Speaking in Frankfurt, Central Bank governor Patrick Honohan said he welcomed the deal agreed on IBRC and insisted it was "far away" from monetary financing of governments, illegal under ECB rules. "I'm very satisfied with the arrangement the government has made around IBRC but I don't want to go into details," he said in Frankfurt this afternoon.
Asked about the arrangement on the Anglo Irish promissory notes, he added: "We have it all examined and, don't worry, we're very far away from monetary finance."
The legislation passed all stages of the Oireachtas early this morning and was signed into law by President Michael D Higgins.
Sitting through the night, Seanad Éireann approved the passage of the Bill just before 5.50am, some two and a half hours after the Irish Bank Resolution Corporation Bill 2013 had been voted through in the Dáil. It was then sent by dispatch rider to Áras an Uachtaráin to be signed into law by President Higgins.
The Government was supported by Fianna Fáil in both Houses, as well as by a small number of independent TDs and Senators.
Mr Noonan told the Dáil and Seanad that the rushed nature of the legislation was regrettable but had come about after leaks to Blomberg and Reuters yesterday of "reliable" information that might have an effect on markets might have placed between €12 billion and €14 billion of IBRC assets at risk. He said a team from the accountancy firm KPMG had gone into the bank at 4pm yesterday to take control of operations.
Minister of State at the Department of Finance Brian Hayes said this morning the Government was very confident about the constitutionality and "legal robustness" of the legislation. He said any action by the bank in relation to the Quinn family would continue and the Government would do everything it could to recover assets that belonged to the Irish people.
Mr Noonan also disclosed in the Seanad that the legislation had been prepared some months ago and that KPMG had been on standby for months to step in at short notice in the event of a leak such as the one that happened yesterday. He said there had been several "scares" in recent months with concerns about "substantial leaks" that might have had an adverse impact on the assets of IBRC.
A senior source confirmed that a draft of the legislation had been prepared last autumn when a similar leak of sensitive information seemed possible.
In his Dáil speech, Mr Noonan said it was not possible to have a long drawn out debate where assets of the IBRC were deteriorating.
Opposition speakers were critical of the manner in which the former bank's 850 employees had discovered that their jobs were being terminated through the media. They contended that there was a lack of detail and clarification from the Minister about what will happen to employees. Mr Noonan said that all employee contracts would be terminated but the majority would be rehired during the winding down process. The loss of jobs and the insensitive nature that the workers were treated were referred to frequently by opposition TDs and Senators during the course of the debate.
The 56-page Bill was published following a hastily-arranged Cabinet meeting at 9pm, and after a series of procedural adjournments, the Dail began debating the legislation just after midnight.
Mr Noonan said because information relating to the proposal to liquidate IBRC was leaked by "international agencies" there was an immediate risk to the bank and he had to take immediate action to secure the stability of the bank and the value of its assets, valued at €12 billion, on behalf of the State.
The Minister said it was "unheard of for a liquidation to be announced only for it not to be implement immediately".
To do so would allow creditors strip the company of its assets, and debtors to refuse to pay. He said the Government was in a position where it could not deny the details of its plan. "To this end, I vested the powers of the board temporarily in an employee of KPMG and a KPMG team is now in control of the Bank on my behalf."
Mr Noonan said once the legislation was passed joint special liquidators will be appointed to IBRC with immediate effect to wind up its business and operations.
After a debate of just under three hours, the Bill was passed by 113 votes to 35 and referred to the Seanad.
The debate in the Seanad commenced at about 3am and was completed a little after 5.40am when the upper house approved the legislation by 37 votes to six. Along with three Sinn Féin senators, independent senators John Crown and Sean Barrett voted against, as did the Labour senator James Heffernan, who had already relinquished the party whip.
Additional reporting: PA