Deal 'eases burden on everybody'
Minister for Finance Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin shake hands after yesterday's press conference on the bank debt deal. photograph: David Sleator/The Irish Times
The deal on bank debt secured by the Government yesterday "eases the burden on everybody", Minister for Finance Michael Noonan has said.
The agreement, which will reduce the country’s borrowing needs by €20 billion in the coming decade and ease budget pressures over the next two years was unveiled by Taoiseach Enda Kenny in the Dáil yesterday.
Mr Noonan said today there was now no promissory note that meant a payment of €3.1 billion to be repaid "this March, next March or any March".
"There will be no capital to be repaid until the bonds mature - no capital repayments whatsoever until 2038." The last capital repayments would be in 2053.
Speaking on RTÉ's Today with Pat Kenny programme, Mr Noonan said what usuallyed happened with such sovereign debt was that when it came up to the point of repayment "you roll it over, you refinance it. Most sovereign debt never gets repaid but it runs down in value".
Questioned on Ireland's €9,000 per capita figure owed in relation to banking debt compared to the €125 average in other EU countries, Mr Noonan said the figures were "interesting statistics". But he said every country had debt. The US had "enormous" debt and a "frightening" level per capita.
"But that's not the way the world works."
Referring to a listener's correspondence, he said children today would not have to worry about promissory notes or debt if the Government could "get this right". "It's improving every month and we will continue driving at it."
There was sustained applause from Fine Gael and Labour TDs for the Taoiseach when he sat down after outlining the agreement with the European Central Bank (ECB) to the chamber.
The announcement of the deal came after 24 hours of political drama which saw emergency legislation to liquidate the Irish Bank Resolution Corporation (IBRC), formerly Anglo Irish Bank and Irish Nationwide Building Society, being rushed through the Oireachtas early yesterday morning.
The Cabinet met at 2pm yesterday to approve the complex deal agreed earlier with the European Central Bank after months of negotiations.
Mr Kenny came into the Dáil immediately afterwards to announce that, under an agreement with the ECB, the controversial promissory notes were being exchanged for long-term Irish government bonds with maturities of up to 40 years.
“The remnants of Anglo Irish Bank and Irish Nationwide, stains on our international reputations and dents to our national pride, have now been removed from the financial and political landscape. Their closure bookends a tragic chapter in our country’s history,” he said.
Good day for Ireland
Arriving in Brussels later last night for a meeting of EU leaders, Mr Kenny said it was a "good day for Ireland".
The Taoiseach said he planned to "explain to leaders when it is appropriate" the nature of the agreement and the arrangement arrived at for Ireland, which he was 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".
Other restructuring regarding legacy bank debt was "a different argument for a different day".
He added: "That’s an argument that won’t be decided on finally for some time."
Central Bank governor Patrick Honohan said the plan to liquidate IBRC was considered “from a long way back”.
After the deal was announced yesterday, the yield on Irish benchmark 2020 bonds fell as low as 3.955 per cent, the lowest seen in an equivalent Irish benchmark bond since early 2007, before the subprime crisis started, according to Reuters data.
Last payment in 2053
In the Dáil Mr Kenny said the first payment of principal under the new deal will not now be made until 2038 and the last payment will be made in 2053. The average maturity of the Government bonds will be over 34 years as opposed to the seven to eight year average maturity on the promissory notes.
“In effect, we have replaced a short-term, high interest rate overdraft that had to be paid down quickly through more expensive borrowings, with long-term, cheap, interest-only loans,” said Mr Kenny.
He said that as a result of the deal there would be a €20 billion reduction in the National Treasury Management Agency’s market borrowing requirements in the next decade with a very large reduction in the debt servicing costs of the State over the next generation.
The Taoiseach said the agreement would bring the country €1 billion closer to attaining our 3 per cent deficit target by 2015. “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,” he said.
However, the Taoiseach added that the deal did not represent a silver bullet to end all the country’s economic problems.
Giving a guarded welcome Fianna Fáil leader Micheál Martin said Ireland deserved a fair deal but the question was whether this deal had gone far enough and whether it would affect people in terms of their taxes and services.
At a symposium in Frankfurt to honour his deputy governor, Stefan Gerlach, Mr Honohan yesterday described the Anglo Irish Bank episode as “horrendously damaging” for Ireland.
He said he had “quite a lot of sympathy” for people involved in the 2008 bank guarantee. “Some should have been better informed, some should have had better advice, some shouldn’t have jumped to conclusions, some shouldn’t have been so arrogant and over-confident.”
He reminded his audience that Ireland was a triple-A market darling and its banking problems were initially dismissed as natural aftershocks from Wall Street turbulence. The Irish government decided to “guarantee everything, with no shilly-shallying around”.
“Did the ECB recommend that? I am sure they didn’t, though nobody knows,” said Mr Honohan, who joined the Central Bank and ECB governing council a year after the guarantee. In hindsight, he said it would have been “best practice to have given a limited guarantee. If they’d known Anglo Irish would be so bad they should have been closed there and then with losses to depositors.”