Peter Fitzpatrick (Louth, Fine Gael) | Oireachtas source

The deal done between the Government, the ECB and the Central Bank of Ireland is the first step in the right direction. The State will no longer have to pay €3.1 billion every year on 31 March. Thanks to the savings delivered as part of the deal, the budgetary adjustment for next year will be €1 billion less. Furthermore, we will have to borrow €20 billion less in the international markets over the next ten years as a result of this deal. The annual promissory note payments are gone. This is a step towards the economic recovery and job creation. It will significantly enhance our ability to access the bond market again. The promissory notes will be replaced with a long-term low interest government bond. The first of these long-term bonds will mature in 2038 with the final bond in 2056. Until then, we will have to pay a floating variable interest rate of 3% to 3.5% on these government bonds. The rate on the promissory notes was around 8%. This transaction is like replacing a short-term loan with both interest and capital repayments with a long-term interest-only mortgage. Our lender is the Central Bank and the Central Bank returns its profits to the Exchequer, which is the Department of Finance. It returns its profits to us. Since the Central Bank borrows its money from the ECB at 1% or less, it will make a profit of 2% to 2.5% per year on this interest.

As this money will be returned to us, the effective interest rate on our bonds will be approximately 1%.

As part of the deal and in order to allay the concerns of the ECB in respect of monetary financing, the Central Bank has committed to selling a certain number of Government bonds on the market each year. This means that the potential profit on these bonds - returning from the Central Bank to the State - will be lost to the private sector and that the interest rate may be changed.

Several prominent commentators have welcomed the deal. Mr. Colm McCarthy stated that, in view of the context, the deal was as good as we were going to get. An editorial in the Financial Timesindicated that "it is good that an economically and politically indispensable move was not blocked. Greater fiscal breathing room should help both market confidence and growth in Ireland".

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