Relief as ECB gives Ireland 40 years to repay debt

The European Central Bank has agreed a deal to ease Ireland’s debt burden, in a major boost to Dublin’s hopes of emerging from an international bailout programme.

• Finance Minister Michael Noonan forced to act after reports of agreement with European Central Bank were leaked

• Not acting would have resulted in potential liabilities of up to €40 billion

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• Former chief executive and two former directors awaiting trial on fraud charges linked to bank’s collapse

The agreement centres on the promissory notes issued to cover the debt of Anglo Irish Bank, whose huge losses were at the centre of Ireland’s banking crisis. A €3.1 billion (£2.64bn) repayment for the politically toxic IOUs had been due next month, until the deal was agreed.

Irish Taoiseach Enda Kenny told the Dáil earlier today that the annual promissory notes were now gone. “I am pleased to announce that today Ireland has reached a conclusion to its discussions with the European Central Bank [ECB] that delivers on our commitment to put in place a fairer and more sustainable arrangement,” he said.

“Today’s outcome is an historic step on the road to economic recovery. Step-by-step, this government is undoing the disastrous banking policies that brought this state to the brink of national bankruptcy.”

ECB president Mario Draghi declined to confirm whether a deal had been done, saying it was a matter for the Irish government. Asked if a deal had been reached with Dublin, he said the ECB “noted” the actions of the government.

Today’s announcement came after the Irish Bank Resolution Corporation (IBRC), which comprised the state-owned Anglo Irish Bank and the Irish Nationwide Building Society, was liquidated in dramatic fashion this morning. President Michael D Higgins signed the necessary bill at 7am.

Irish finance minister Michael Noonan told the Dáil the rushed nature of the legislation was regrettable but had come about after media leaks of “reliable” information that might have had an effect on markets and could have placed between €12bn and €14bn of IBRC assets at risk.

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 principal €28bn debt that was owed by Anglo Irish will remain and will have to be repaid by the Irish state. The first principal payment will not now be made until 2038, with the last payment being made in 2053.

Mr Kenny said 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, the Irish government has replaced a short-term, high-interest rate overdraft, which had to be paid down quickly through more expensive borrowings, with long-term and cheap interest-only loans, Mr Kenny said.

The political reaction to the new deal was mixed. Fianna Fail leader Micheál Martin was broadly in favour, but Sinn Féin finance spokesman Pearse Doherty attacked Mr Kenny over the deal.

“What you have said to every man woman and child in this state is that they will pay back every single penny of the toxic tax Anglo debt, a cost of €14,000 for every man, woman and child in the state.”

Anglo Irish and its reckless lending policies were at the heart of Ireland’s financial crisis. The bank’s near-collapse in 2008 pressured the government into guaranteeing the entire financial sector, sucking it into a downward spiral and, in late 2010, a €67.5bn loan from the European Union and International Monetary Fund.

Three of the bank’s former executives, including its chief executive, will go on trial next year on fraud charges.

Whether the new deal with the ECB will result in a loosening of Ireland’s tight austerity regime remains to be seen.

“My sense would be that our partners would want this to be regarded as a windfall gain that should be ferreted away, but politically there will be pressure for a somewhat less austere budget in December,” KCB Ireland economist Austin Hughes said.