Ireland hails historic debt deal with European Central Bank

After nearly 18 months of negotiation, Prime Minister Enda Kenny won European Central Bank (ECB) approval to stretch out the cost of bailing out Anglo Irish Bank, slicing billions off the country's borrowing needs and cutting its budget deficit.

“Today's outcome is an historic step on the road to economic recovery,” Kenny told a packed parliament in Dublin. “It secures the future financial position of the state.”

The assent of the ECB is a major coup for Kenny, who was forced to call an emergency session of parliament last night to liquidate Anglo Irish, a lender whose casino-style attitude to risk helped precipitate the country's financial implosion.

“It certainly is unusual in the history of the crisis that we are actually being surprised in a positive way by the scale of the response,” said Austin Hughes, chief economist at KBC Bank. “Normally we have seen underachievement and overpromising.

“The early indications are that this will make a material difference for the outlook on the Irish economy.”

The agreement stretches the cost of bailing out Anglo Irish over 40 years rather than ten and cuts Ireland's borrowing needs by 20 billion euros over the next decade.

It also gives the government another 1 billion euros to work with in forthcoming budgets.

Technical talks between the ECB and Irish officials had been bogged down by ECB concerns that any deal given to Dublin to ease the 48-billion-euro cost of the Anglo promissory notes could set a precedent for other countries, such as Spain, which are also dealing with large bank debts.

But with European leaders keen to offer a success story from the region's debt crisis to encourage both voters and potential investors, Dublin went back to the drawing board.

The new deal was designed so that the ECB did not have to vote on it, enabling ECB President Mario Draghi to say simply that the Governing Council had simply “taken note” of Dublin's plan.

The yield on Irish benchmark 2020 bonds fell as low as 3.955 percent, the lowest seen in an equivalent Irish benchmark bond since early 2007, before the subprime crisis started, according to Reuters data.

The government said it had cut its forecast for next year's budget deficit as a proportion of GDP to 4.5 percent from 5.1 percent previously and to 2.4 percent from 2.9 percent previously for 2015, below a target of 3 percent.

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