Ireland’s parliament has pushed through legislation to liquidate the failed Anglo Irish Bank, paving the way for a deal with the European Central Bank (ECB) that enables the country to spread out the cost of repaying the loans for bailing out its decimated banking sector.
The bailout loan from the ECB was costing Ireland €3.1bn a year in interest, or around 2% of Ireland’s economic output. The new deal involves extending repayments of the cost of the country’s bailout to 40 years instead of 10, by converting a so-called ‘promissory note’ to sovereign bonds and thereby reducing borrowing costs by €20bn over the next decade. News of the ECB’s agreement sent the country’s sovereign borrowing costs below pre-2007 levels, as 10-year yields fell to 3.955%.
Irish politicians in the lower house voted 113 to 36 to approve the legislation, despite criticisms that it was being rushed through and lacked detail. On 7 February, the ECB approved plans for the assets of Anglo Irish Bank and its successor, the Irish Bank Resolution Corporation (IBRC) to be bought out by Ireland’s state-run ‘bad bank’, the National Asset Management Agency (NAMA), which has responsibility for recovering the value of problematic loans made by Irish banks. The IBRC, which had been winding down Anglo Irish Bank’s loan book for more than two years, will now cease to exist and its board of directors has been dismissed.
Ireland’s prime minister, Enda Kenny, said the disappearance of Anglo Irish Bank and the Irish Nationwide Building Society - another failed lender also taken over by IBRC - from the Irish financial landscape was “long overdue” and a milestone in Ireland’s “path back to prosperity and full employment” that would enable Ireland's debt levels to fall those below those of Germany.
“It closes a sad and tragic chapter in our economic and political history,” said Kenny, but added: “Let there be no doubt that this decision is not a silver bullet to end all our economic problems. The damage done by these economic institutions will take many years to rectify.”
Although Ireland is regarded as the most compliant of the eurozone’s troubled ‘PIIGS’ (Portugal, Ireland, Italy, Greece and Spain) economies and possibly the one that has made greatest progress in recovering from the eurozone’s various sovereign debt crises, the issue of its debt mountain had threatened to undermine the stability of Ireland’s Fine Gael/Labour coalition government and the country’s ability to adhere to its eurozone bailout terms. The battered reputation of the country’s banks is unlikely ever to be recovered, but a reduction in the on-going costs of saving the country’s banks is likely to be a welcome development.