Kenny says ECB deal could cut borrowing by €20 billion

Taoiseach Enda Kenny announces a deal has been agreed with the European Central Bank on the Anglo promissory notes.

Taoiseach Enda Kenny announces a deal has been agreed with the European Central Bank on the Anglo promissory notes.

Thu, Feb 7, 2013, 00:00

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.” .

ECB deal

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.

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