New bailout deal will cut borrowing

The Government expects Ireland’s borrowing requirement in the years to 2020 to be “significantly” reduced as a result of a new deal with the euro zone powers to postpone bailout loan repayments by an average of seven years.

Minister for Finance Michael Noonan said the arrangement should further reduce the interest the State pays to issue new debt to private investors as the Government plots its exit from the bailout at the end of this year.

The deal was signed off yesterday in Dublin Castle at a meeting of EU ministers, which continues today.

The talks were marked by an agreement at Germany’s behest to examine new changes to the EU treaties to reinforce the legal standing of the regime under which the European Central Bank is to supervise commercial banks from next year.

This has potential to create political problems for the Government given the possibility of any treaty change necessitating another European referendum.

Although this question will not be settled for some time, the ministers issued a statement in which they declared themselves ready to “work constructively on a proposal for treaty change” if that was necessary to underpin the new ECB powers.

Resources
Although Mr Noonan said there would be an improvement in the Government's cash resources when the loan maturities are prolonged, he told reporters last night that the main benefit would not be seen for some time.

“It’s one of the objectives of the Irish people, I think, to have their sovereignty restored and the manifest expression of that is to get out of the bailout and to get back in a sustainable way into the markets,” he told a press conference.

“So the principal benefit is that this is another very significant step in restoring Ireland to market finance and to sustainable market finance.

Significant
"As interest rates go down as I expect they will in the short to medium term, it will have some budgetary effect as well but . . . it wouldn't be a significant effect in the early years, but in the medium and long term."

Neither the Minister nor Government officials would put a figure on the likely reduction in the Government’s net borrowing after the bailout as a result of the deal.

The maturity of Portugal’s loans was also extended.

Including the Irish bailout and all other debt, the State’s borrowing requirement has been estimated by the EU-IMF troika at €20 billion per year between 2016 and 2020.

However, the deal is expected to push into the next decade the repayment of more than €15 billion from the European loan package which falls due before 2020. The remaining €27.4 billion from the €42.5 billion loan deal falls due after 2020.

The deal was welcomed by Moody’s credit rating company, the only one of the three leading global agencies to maintain its “junk” status on Irish sovereign debt.

While this remains a key blockage to the sale of Irish bonds to certain private investment and pension funds, Moody’s did not say whether it was ready to upgrade its rating.