Irish Economy: Taoiseach Enda Kenny today announced in the Dáil, a deal with the European Central Bank to restructure the promissory note debt in respect of the failed Anglo Irish Bank and Irish Nationwide Building Society, by extending maturity on the debt of €28bn excluding interest to 40 years.

The promissory notes are being exchanged for longer term bonds with the first maturing in 2038 and the last in 2053. There will be a €20bn reduction in the borrowing requirement of the NTMA (National Treasury Management Agency) in the coming years.

Kenny said as a result of the deal, tax increases and spending cuts will be €1bn lower each year.

The liquidation of IBRC, the renamed Anglo Irish Bank, resulted in the Central Bank taking full ownership of the €25bn in the promissory notes and other collateral held as security for the funds provided by the Central Bank to the IBRC.

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Kenny said: "The average interest rate on the new bonds will begin at just over 3%, compared with an interest rate of well over 8% on the promissory notes.

This will result in a reduction in the State’s General Government deficit of approximately €1bn per annum over the coming years, which will bring us €1bn closer to attaining our 3% deficit target by 2015. This means that the expenditure reductions and tax increases will be of the order of €1bn less to meet the 3% deficit target.

This plan will lead to a substantial improvement in the State’s debt position over time."

However, the amount of the interest savings is subject to question as some of the planned interest payments on the notes would be received by the Exchequer in the form of Central Bank annual profit distributions.

Mario Draghi, ECB president, at a press conference in Frankfurt today, looking exasperated as he listens to another question on the Anglo deal, where he says the governing council 'took note' of the agreement between the Irish Government and the Irish Central Bank on the promissory note debt ex-interest of €28bn.

Kenny warned: "Even as the lower interest rates resulting with this agreement reduce Ireland’s deficit, a very large and unsustainable gap between Government revenues and spending remains to be fixed – a gap unrelated to our banking crisis. Only we in Ireland can fix this problem by reforming the way our State and country works.

We continue to negotiate to improve other core elements of the onerous bail-out deal inherited from the previous Government. Today, we have secured a vastly better deal on the cost of bailing out Anglo Irish Bank and Irish Nationwide. Tomorrow we continue our efforts to seek European assistance to recover as much taxpayers’ money as possible from the other financial institutions bailed out by the State."

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