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Friday, February 8, 2013
The Guardian – Henry McDonald – Ireland Secures Deal To Reduce Anglo Irish Bank Debt Repayments
Taoiseach says plan, which the ECB appears to back, will save €20bn over next decade and bolster global confidence in Ireland
Ireland has secured a deal from its European partners on crippling bank debt that will save it at least €1bn this year and €20bn over the next decade.
Enda Kenny on Thursday told the Irish parliament the dramatic reduction in payments to bondholders of the now defunct Anglo Irish Bank was “an historic step in our economic recovery”. The taoiseach predicted the cut in bank debt payments would bolster global confidence in Ireland.
Anglo Irish Bank was the financial institution that almost bankrupted Ireland as it became the lender of choice for speculators who borrowed billions to play the global property market. When that market crashed in 2008 the bank had to be nationalised, costing the Irish taxpayer tens of billions of euros. The debt burden also included shoring up another toxic financial institution, the Irish Nationwide building society.
The deal, which seems to have the approval of the European Central Bank, involves tearing up the promissory notes (IOUs) to Anglo’s bondholders and pushing back the debt payments to at least 2043. In addition, the plan entails the full liquidation by 1 July of the state-owned bank which was renamed the Irish Bank Resolution Corporation. This will result in the loss of around 1,000 jobs in the Republic and Northern Ireland.
The Fine Gael-Labour coalition said the deal would significantly ease the burden of the Republic’s repayments on the money owed to Anglo’s bondholders.
Before Kenny spoke inside the Dáil on Thursday to confirm the deal, the ECB president, Mario Draghi, hinted during a press conference in Frankfurt that the bank was backing the plan. Draghi said the ECB would “take note” of the Irish proposals, which officials in Frankfurt later said was code for its backing.
The taoiseach predicted that the deal to lower Ireland’s bank debt would enable the country to restore economic sovereignty through the exiting IMF/ECB/EU bailout. “The promissory notes in Anglo Irish Bank and Irish Nationwide served as a millstone around the neck of the Irish taxpayer. This burden served to erode confidence and limit the economy’s ability to grow.
“The new plan will likely materially improve perceptions of our debt sustainability in the eyes of potential investors in Ireland, leading to lower interest rates and faster growth than would otherwise be the case.”
Micheal Martin, the leader of the main opposition party, Fianna Fáil, challenged Kenny, asking him to clarify if the savings of more than €1bn as a result of the bank deal would be re-invested into the Irish economy in terms of creating jobs and capital spending projects. Unemployment in Ireland is at 14.6%.
Securing a deal to slash the country’s bank debt with European support has been a major test of the coalition’s economic competence. The deal to dissolve Anglo and at the same time win support for postponing the bank debt payments was called Project Red and was hammered out between the Irish Central Bank and the ECB.
Several of the leading executives in the Anglo are facing criminal investigations over alleged financial malpractices.
During the Celtic tiger boom of the late 1990s and first six years of this century, the bank loaned billions to business tycoons to buy up property portfolios across the world. The most infamous investor to borrow from Anglo was Ireland’s one-time richest man, Sean Quinn, whose gambling with his successful cement and insurance businesses not only lead to bankruptcy but also a stint in Mountjoy prison in Dublin.