The Irish economy is to receive a $30billion boost after the government successfully renegotiated the promissory note deal on Anglo Irish Bank payments.
Prime Minister Enda Kenny believes the Anglo deal will kick-start Ireland’s economy and boost recovery after the Celtic Tiger crash.
The state will now extend the cost of bailing out toxic bank Anglo over 40 years instead of 10 with the final repayment not due until 2053.
Kenny’s Finance Minister Michael Noonan has confirmed that the deal with the EU and the IMF will relieve the pain on taxpayers in his next two budgets.
The Irish Independent reports that Noonan will utilise the interest savings to reduce Budget pain by $1.3billion over the next two years.
The Minister said: “What it means to the ordinary family is that there will be €1bn less taken from them in terms of taxes and expenditure cuts over that period.”
Irish PM Kenny told the Dublin parliament that the deal will not offer a magical solution to the country’s current economic problems with painful tax rises and spending cuts still planned.
But he does see it as a victory for his government’s policy as it attempts to clean up the bank mess.
Kenny said: “Today’s outcome is a historic step on the road to economic recovery.”
The new deal with the European Central Bank was approved at a meeting in Frankfurt after months of complex negotiations.
Titled Project Dawn, the deal will swap promissory notes worth almost $40billion for long-term sovereign bonds.
The Irish Independent reports that the 10 year promissory notes will now be replaced by government borrowing carrying a lower interest rate and repayable over a much longer period
Kenny added: “Step by step, this Government is undoing the disastrous banking policies that brought the State to the brink of bankruptcy.
“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 report adds that under the deal
• None of the capital borrowed will be repaid before 2038 when the first bond matures.
• The final bond will not mature until 2053.
• A varying interest rate of between 3 per cent and 3.5 per cent will be imposed on the bond, which will be an effective rate closer to 1 per cent.
• The Government will borrow $30billion less over the next decade.
• About $1.3billion less in taxes and spending cuts will be needed up to 2015.
The final settlement cost is expected to be far in excess of the original $65billion bill that had been due to be paid within the next 10 years.
Noonan insisted that the final cost will be significantly lessened when it fell due as a result of the impact of inflation and economic growth.
Government backbenchers applauded the deal in parliament while Noonan was cheered at the Fine Gael parliamentary party meeting.
Deputy Prime Minister Eamon Gilmore and Public Expenditure Minister Brendan Howlin were cheered at the Labour Party meeting.
Gilmore said: “We are tearing up the promissory note and we have wiped Anglo Irish Bank off the map.”