DUBLIN (AP) — Ireland has earned a long-sought agreement with the European Central Bank to overhaul repayment of its colossal bank-bailout costs, a deal expected to save the country €20 billion ($27 billion) in the coming decade and ease its return to normal borrowing on bond markets this year.
Prime Minister Enda Kenny won relieved applause from red-eyed lawmakers on Thursday as he announced the breakthrough after more than a year of negotiations with ECB governors in Frankfurt. The deal will allow the government to ease off the austerity measures as it heals its public finances in coming years.
His announcement came hours after parliament voted to dissolve one of the government-owned "bad banks" — which Ireland had borrowed heavily from the ECB to set up — in favor of what it hoped would be imminent ECB approval for drastically new debt-repayment arrangements.
Kenny said Ireland's 2010 commitment to pay back €31 billion ($42 billion) in ECB-backed loans in hefty annual payments through 2031 will be replaced with a new system of government bonds. Those bonds will require interest-only payments until the first bonds mature in 2038, sharply reducing payments over the coming decade, and the last bonds won't require repayment until 2053.
"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.
The premier, who rose to power two years ago on a pledge to slash Ireland's bank-bailout bill, forecast that the new plan would prune more than €1 billion from Ireland's deficits annually from next year onward. That will give the country an immediate boost in its efforts to end its reliance this year on loans from fellow eurozone states and the International Monetary Fund.
Under terms of Ireland's national bailout, also completed in 2010 as bank-bailout costs destroyed the government's own ability to borrow, the government must slash spending and raise taxes to reduce its 2015 deficit to the eurozone limit of 3 percent of annual gross domestic product. Ireland expects to make its 2013 deficit target of 7.5 percent and now believes it can reach the 2015 goal with less painful austerity steps.
Kenny has stressed that Ireland wasn't seeking any default or partial write-offs of the debt, because that would undermine its efforts to repair its creditworthiness.
The new plan will remove Ireland's 2010 repayments of fixed promissory notes — government IOUs — with a range of new government bonds that can be traded or rolled over with new borrowings.
Ireland is hopeful of selling on these bonds to private investors in coming years as Ireland's credit ratings recover from the 2008 collapse of its cheap credit-fueled property market, the issue that drove Ireland's six domestic banks to the edge of bankruptcy.
Kenny's announcement followed a dusk-to-dawn drama at Ireland's parliament as the government, hinting Wednesday night at a debt deal, summoned lawmakers for a midnight debate on a surprise bill to kill off Irish Bank Resolution Corp., or IBRC.
The government had created IBRC just two years ago as a receptacle for the battered loan books and impaired property assets of Ireland's two biggest gamblers in banking, Anglo Irish and Irish Nationwide. But the government received overwhelming backing from lawmakers to dissolve IBRC before the courts opened Thursday and to hand its property portfolio, worth at least €12 billion, to the country's other "bad bank," the National Asset Management Agency, or NAMA.
Finance Minister Michael Noonan defended the exceptional haste as necessary given the risk that private creditors of IBRC would file lawsuits Thursday seeking control of their properties.
Noonan said that shutting IBRC would "come as quite a shock" to the bank's 800 employees, who immediately lost their jobs. But he said the government had no choice after its plans, drafted months ago, were leaked to international news agencies Wednesday.
"Did you ever hear of a liquidation that was announced one day and not implemented for several days or weeks?" Noonan told lawmakers, many of whom were given just minutes to read the nearly 60-page bill. "Creditors will line up to strip the company of everything they can lay their hands on, and debtors will not pay a penny because they know the company is going into liquidation."
The deal removed 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, given the country has been raising taxes and slashing spending since 2009 and faces the imposition this year of deeply unpopular new taxes on property and water.
Under terms of the 2010 rescue plan, Ireland was to pay €3.06 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 ($14,000) for every man, woman and child in Ireland.