DUBLIN – Ireland clinched a long-sought agreement Thursday with the European Central Bank to restructure the loans used to bail out its failing banks, a deal expected to reduce the national debt by €20 billion ($27 billion) in the coming decade and help the country’s expected exit from its own international bailout.
Red-eyed lawmakers applauded Prime Minister Enda Kenny as he announced the breakthrough after more than a year of negotiations with ECB governors. The deal should allow Ireland, which has imposed severe austerity measures since 2009, to reduce planned cuts and tax hikes in coming years.
His announcement came hours after lawmakers voted to dissolve a government-owned “bad bank,” the Irish Bank Resolution Corp. (IBRC) — the focal point for Ireland’s divisive 2010 deal negotiated with the ECB to repay foreign bank bondholders in full. That agreement had required Ireland to make annual repayments of €3.06 billion ($4.1 billion) through 2023 and more payments through 2031 totaling €48 billion, including 8 percent interest.
Kenny said ECB governors had agreed to replace that crippling formula with new Irish government bonds that will not need to be repaid for a generation. He said Ireland for more than two decades will pay only the annual interest-rate payments, or yields, on the bonds until they start maturing in 2038, sharply reducing current payments and shaving more than €1 billion ($1.3 billion) off next year’s budget deficit.
“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,” Kenny said.
Finance Minister Michael Noonan said the annual yields of the bonds will float in line with market expectations, currently between 3 and 3.5 percent, reflecting Ireland’s improving reputation among foreign creditors as a country that pays its bills and does not default.
Kenny, who rose to power two years ago on a pledge to slash Ireland’s bank-bailout costs, said Ireland’s improved power to reduce its deficits should help the country end its reliance this year on loans from European Union partners and the International Monetary Fund.
Ireland was forced to take the EU-IMF bailout in 2010 as the cost of rescuing Ireland’s six banks destroyed the government’s own ability to borrow. Ireland ultimately was forced to nationalize five banks.
The government created IBRC just two years ago to hold the battered loan books and impaired property assets of Ireland’s two most reckless property speculators, Anglo Irish Bank and Irish Nationwide Building Society.