How much are we likely to save as a result of this new deal?
The two percentage point cut in the interest rate the State pays on the main bailout fund is likely to save between €600 million and €800 million annually, while a similar deal on a second bailout fund which is likely to follow could see the savings climb to over €1 billion a year. All told, we have had about €10 billion lopped off our bailout repayment bill at the stroke of a pen. And as we can now spread the repayments over 15 years as opposed to just over seven – with an option to extend that to as long as 30 years – the financial burden has been even further reduced.
Excellent! Presumably this means the Government can get rid of the universal social charge (USC), scrap the plans to introduce property and water taxes and start readying itself for a bumper giveaway budget?
Um, no. While the savings may seem massive, the reality is they are dwarfed by the scale of our borrowings and the recession. The State will spend about 10 per cent more this year than it collects in tax, and the gap between what we earn and spend will be €15 billion, assuming the cost-cutting steps announced in the last budget are implemented. Scrapping the USC would cost about €4 billion in a year. If the Government decided against the property charge, which will see 1.8 million households pay about €200 annually, it would mean saying goodbye to a further €360 million each year.
Ah, right. So nothing at all to look forward to, then?
Actually, there is. Minister for Finance Michael Noonan will still roll out cuts of about €3.5 billion in his first budget in December, but the reduced interest payments will give him more room to manoeuvre and may help him avoid having to make cuts in certain areas which could significantly damage economic growth. It will also mean that, over an extended period, budgets should be less harsh than they might have been, and it gives the State a chance to work its way out of the financial black hole.
Other reasons to be cheerful?
Cheerful might be stretching it, but there are other reasons to hail the deal. Uncertainty and fear have been sapping consumer spirit for more than a year. This deal, at least for now, puts the thing to bed. Now that Greece has been, for want of a better phrase, put into cold storage, it should take the financial crisis off the front pages for a while and allow folk think about ordinary things again. Once the uncertainty is gone, people and businesses may even start spending again, something which is crucial to our economic recovery.
Will it lead to more lending by our banks?
In the short term it is unlikely to make a blind bit of difference. Bankers say one problem is that “quality borrowers”, people with an obvious ability to repay, are few – something they attribute to a lack of confidence. This deal may see that change, which would lead to an uplift in borrowing. And in the medium term, it should hasten the recovery of the banking sector, which will free up funds too.
And we won on corporation tax, right?
This has been a very good week for Enda Kenny. He won widespread acclaim for the manner in which he eviscerated the Vatican for its handling of child abuse, saw his poll numbers rocket, won a two percentage point cut in our interest repayments and came out on top in his long-running battle with Nicolas Sarkozy. The French president developed an obsession over our 12.5 per cent corporation tax rate, and demanded it be raised, but all Kenny agreed to was to engage constructively in talks on a common consolidated corporate tax base. There is nothing new in this, and the position mirrors the stance Ireland adopted when the European Commission unveiled legislative proposals on that front earlier this year.
So who’s lost out then?
Amazingly, it would appear to be Germany and France, which were forced to climb down in a number of key areas. Maybe no one will lose in the long term, and we’ll all end up winners. We did say maybe.
