A debt deal to cut the cost of Ireland's toxic bank rescue could slash €1bn (£0.85bn) from tax hikes and spending cuts in upcoming budgets, the Republic's leaders have claimed.
Taoiseach Enda Kenny said the agreement was not a silver bullet but declared that it would reduce state borrowing by €20bn (£17bn) over the next decade.
Project Red, as the deal was secretly known in Dublin, will see €28bn (£24bn) worth of costly IOUs from the nationalisation of Anglo Irish Bank – which fuelled the property boom in Northern Ireland by lending millions of pounds to developers – swapped for long-term sovereign bonds.
"Step-by-step, this Government is undoing the disastrous banking policies that brought this state to the brink of national bankruptcy," the Taoiseach said.
"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 Irish Government did not ask for a write down on the Anglo debt in negotiations with the European Central Bank (ECB).
"We always said that we were not looking for any write downs. Anybody who knows the European situation knows that the ECB does not do write downs," Finance Minister Michael Noonan said. Under the scheme:
- None of the capital borrowed will be repaid before 2038 when the first bond matures.
- A floating interest rate of between 3-3.5% will be imposed on the bond which, due to money moving in and out of the Central Bank of Ireland, will have an effective rate closer to 1%.
- The Government will borrow €20bn less over the next decade.
- At least €1bn less in taxes and spending cuts will be needed up to 2015.
- The final bond will not mature until 2054.
The arrangement, unanimously backed by ECB chiefs at their meeting in Frankfurt, cancels annual debt repayments of €3.1bn (£2.7bn) due next month and every March for the next 10 years for the collapse of Anglo.
Mr Kenny said failure to secure a deal on the debt, known as promissory notes, would have meant repayments totalling €48bn (£41.5bn).
Irish officials would not put a figure on how much the new arrangement will ultimately cost.
Mr Noonan said that the burden of austerity would ease slightly over the next two years.
"For the man and woman on the street it means they and their families won't have to carry the burden of another €20bn in borrowings over the next 10 years," he said. "What it means for the ordinary family, €1bn less will be taken from them in terms of taxes and expenditure cuts."
The deal was announced hours after the Government secured legislation to allow for rebranded Anglo, the Irish Bank Resolution Corporation, to be liquidated.