DUBLIN (AP) — The Irish government put lawmakers on standby to pass emergency legislation Wednesday as a deal neared with the European Central Bank to reform the repayment terms of Ireland's colossal bank-bailout bill, a move designed to reduce Ireland's deficits and ease its return to normal borrowing.
Aides to Finance Minister Michael Noonan said he hoped to unveil terms of the agreement with eurozone banking chiefs in Ireland's parliament Wednesday night. But government officials later said negotiations with ECB partners might continue overnight and delay the bill's passage to Thursday.
The bill would authorize the immediate liquidation of one of Ireland's two government-owned "bad banks," the Irish Bank Resolution Corp. or IBRC, which for the past two years has managed the toxic property-based loans of two collapsed banks, Anglo Irish and Irish Nationwide. The IBRC chairman, Alan Dukes, said its board has already been dissolved as of Wednesday night and responsibility handed over to a consulting firm that will manage the liquidation.
Under terms of a 2010 agreement between Ireland's previous government and ECB chiefs, Ireland must pay €3.06 billion ($4.1 billion) annually through 2023 and smaller amounts through 2031 to cover the costs of repaying the global bondholders of Anglo and Irish Nationwide. The total cost of that agreement including interest is €48 billion ($65 billion) — or more than €10,000 ($13,500) for every man, woman and child in Ireland.
Since gaining office two years ago, Prime Minister Enda Kenny has lobbied European partner to reduce repayment costs by lowering their interest rates and spreading payments out over an even longer period. Kenny has stressed that Ireland wasn't seeking any default or writedowns on the debt, because that would undermine Ireland's efforts to repair its creditworthiness.
Irish Central Bank governor Patrick Honohan presented plans to other governors of the 17-nation eurozone at a Frankfurt dinner Wednesday. Irish government officials said the plan would allow the existing bank-bailout bill to be converted into a vastly different repayment schedule backed by new Irish government bonds that would mature from 2040 onwards.
The new arrangement would allow Ireland to make interest-only payments at lower average rates until the bonds mature and must be repaid in full. This would reduce Ireland's repayments by more than €1 billion ($1.35 billion) annually, making it easier for Ireland to meet its deficit-cutting targets more quickly.
The deal also would remove a threat to the stability of Kenny's coalition government. Lawmakers in the smaller party in the coalition, Labour, had threatened to withdraw support if Ireland made the next €3.06 billion ($4.1 billion) payment due next month.
Ireland's deficit soared to a modern European record of 31 percent in 2010 because of its bank-bailout efforts, a bill that wrecked the state's own credit rating and forced Ireland to negotiate a €67.5 billion ($91 billion) credit line from EU partners and the International Monetary Fund. That bailout agreement required Ireland to cut spending and raise taxes annually through at least 2015, the target for restoring its deficit to the 3 percent limit. The bailout loans will run out next year, by which time Ireland hopes to be borrowing normally on bond markets again at affordable rates.
The Irish plan would transfer IBRC's property portfolio to Ireland's other "bad bank," the National Assets Management Agency or NAMA, which was formed in 2010 to try to contain Ireland's financial crisis by removing the biggest defaulting loans from the books of commercial banks. But NAMA's rapid-fire acquisition of toxic debts backfired, forcing banks to record massive property losses in one fell swoop. Five of the country's six domestically owned banks had to be nationalized to prevent their imminent collapse, and Anglo and Irish Nationwide were closed down.
NAMA is tasked with gradually selling off its portfolio of homes, apartments, shopping centers, half-built developments and derelict construction sites over the next decade. The vast bulk of its assets have no buyers today because Ireland's property market soared to crazy heights on the back of cheap eurozone credit, then collapsed in 2008 amid the global credit crunch. Irish property values have slumped by more than 50 percent over the past five years and are expected to fall further.