23 August 2014

ECB and Ireland reach deal on Anglo debt

17:05, Post Reporter

The European Central Bank and Ireland have reached an agreement to cut the cost of servicing money borrowed for the former Anglo Irish Bank.

The deal involves swapping promissory notes for longer term sovereign debt.

"We have secured a vastly better deal on the cost of bailing out Anglo Irish Bank and Irish Nationwide," Taoiseach Enda Kenny told the Dail, adding that: "The more Ireland is prepared to help itself, the more others will assist us."

**For full text of speech, see [here](http://www.businesspost.ie/#!story/Home/News/FULL+TEXT%3A+Kenny's+speech+on+prom+notes/id/19410615-5218-5113-c844-bb2960884296).**

**For live blog on prom deal developments, see [here](http://www.businesspost.ie/#!story/Home/News/Prom+deal%3A+live+updates/id/19410615-5218-5113-7c2e-8aa999124570).**

The change involves a switch from the prom notes to debt with maturities of up to 40 years, with the average maturity now 34 years.

There will be a €20 billion reduction in market borrowing requirements in next ten years, since the average interest rate on the bonds will be just over three per cent, compared to eight per cent on promissory notes.

Kenny called the promissory notes an "onerous and unfair legacy" and said the new arrangement was "fairer and more sustainable".

European Central Bank President Mario Draghi told a news conference in Frankfurt that no "decision" had been reached on a deal, saying that instead, the ECB's governing council "took note" of an operation by the Irish government and Irish central bank.

However government sources said this sort of use of language by the ECB chief had been expected.

Irish bond yields dropped on the news: the five-year bond yield has fallen 15.9 points to 2.9 per cent. The 2020 bond yield has dropped 12 points to 3.9 per cent.

Finance Minister Michael Noonan said €1 billion less would be taken from families each year as a result of the deal. "We didn't ask for a writedown; it was pointless," he told a news conference.

Ratings agency Moody's remarked that the deal was "reassuring", and that Ireland's Ba1 rating remains appropriate.

Public expenditure minister Brendan Howlin praised Noonan's skill in delivering the deal, adding: "An average maturity of 34.5 years gives us the space to get back into the markets with confidence."

The EU's economic and monetary affairs commissioner Olli Rehn has said Ireland's debt plan should boost investor confidence in this country.

And the central bank governor Patrick Honohan has told news agency Reuters he was satisfied with the "arrangement the government has made about the IBRC". He also said the deal was "very far from monetary financing."

The troika is unlikely to agree to any slowdown of Ireland's adjustment path and planned budget cuts over the next year or two, *The Sunday Business Post* editor Cliff Taylor noted.

However he said the deal would give considerable leeway in case economic growth remains low - which would threaten our ability to hit the existing targets.

It should also mean that Ireland reaches the three per cent budget deficit target more quickly, making the budgetary position easier in future years.

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