Sunday

1st Aug 2021

ECB gives blessing to 'historic' debt deal for Ireland

The Irish government has secured the tacit blessing of the European Central Bank (ECB) on a long-awaited deal extending the debt repayment on its bailed out banks.

"Today's outcome is an historic step on the road to economic recovery," Irish Prime Minister Enda Kenny said on Thursday (7 February) in the Irish parliament.

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  • Kenny: the Anglo Irish Bank collapsed in 2010, forcing Ireland into an EU-IMF bailout (Photo: eu2013.ie)

"The new plan will likely materially improve perceptions of our debt sustainability in the eyes of potential investors in Ireland," Kenny added.

Meanwhile, in Frankfurt, the wording was everything but spectacular.

"We took note of the actions of the Irish government," ECB chief Mario Draghi said in a press conference following the monthly meeting of the bank's governing council.

Yet the statement was everything Ireland wanted to hear. It also stood in stark contrast with what Draghi had said in a similar press conference in December: that the ECB is forbidden to engage in "monetary financing" in any deal on extending the maturity of the so-called promissory notes which Ireland had to pay to the ECB every year as part of its bailout deal.

The Irish government has for a long time argued that the deal it agreed to in consultation with the ECB back in 2010, when trying to save the Anglo Irish Bank from going bust, was weighing too much on its overall efforts to cut back the public deficit and return to financial markets.

Back then, it issued so-called promissory notes stating that the government will pay back about €47 billion over the next 10 years - the estimated cost of bailing out Anglo Irish Bank and Irish Nationwide, including interest payments.

On Wednesday, the Irish parliament passed an emergency bill liquidating the Anglo Irish Bank's successor.

Draghi rejected the idea that this was a "choreography" agreed between Dublin and Frankfurt. The central banker commended the Irish government for its "progress on the financial policy front."

"That is what really mattered to re-establish the reputation of Ireland on financial markets," Draghi added.

Under the deal, the Anglo Irish promissory notes will be transformed into long term government bonds held by the Irish central bank. Initially, the Irish government sought to keep the bonds until maturity - between 2038 and 2053 - but the ECB opposed this idea, as it would have amounted to direct government funding. Instead, Dublin agreed to pay interests on the bonds which can be traded.

The deal will allow Dublin to return to markets this year and exit the EU-International-Monetary-Fund bailout programme.

EU economics commissioner Olli Rehn on Thursday also welcomed the "major steps taken by Irish authorities regarding the promissory notes [that] should further boost confidence and help to facilitate a successful outcome."

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Analysis

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Five years after the failed Irish experiment of giving a blanket state guarantee for banks, the EU has more rules in place, but taxpayers' money is still on the line.

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