On February 6, just before midnight, a plane carrying Ireland’s president landed at Dublin airport. It was a hastily arranged voyage, interrupting a state visit to Italy so that President Higgins could sign a piece of legislation into law. The particular bill in question had been in the works for months. However, until just hours before his plane touched down, its existence had not been reported outside the government.
Word of the bill had leaked to the press in the late afternoon. Members of parliament received their copies just before 11pm that night. They were given one hour to read the bill before debate commenced. It was a blur of events – even for those involved. At two in the morning, just before the final vote began, Ireland’s finance minister told members of parliament, “Don’t concentrate so much on the detail, look at the purpose.”
At 3am on February 7th, the Dáil (Ireland’s parliament), passed the Irish Bank Resolution Corporation Act. At 7:25am the next morning, President Higgins signed it into law. Although he was now free to return to Italy, the law was just one part of the day’s flurry of activity. For the Prime Minister and the Minister of Finance, the next several hours would see a series of swift negotiations with the European Central Bank who had closely watched the vote early that morning.
The end result of all this was the liquidation of a rather peculiar institution, a new set of agreements with the European Central Bank (ECB), and, to hear it from Ireland’s political leadership, a new lease on life for the country’s economy.
The peculiar institution that was liquidated was the Irish Bank Resolution Corporation (IBRC). The IBRC is the vestige of Anglo-Irish Bank, a bank that had helped push Ireland into financial crisis and towards a 65 Billion Euro bailout from Europe in order to guarantee the solvency of Anglo and other banks. The late-night parliamentary maneuvering had prevented IBRC’s creditors from trying to block the liquidation before it occurred.
After liquidating the bank, the ECB agreed to swap Ireland’s current commitments to its defunct banks, which required the country to shell out roughly 3 Billion Euros per annum (a payment which was set to come due on March 31st) with a set of long-term bonds that would not mature until thirty years later. (OK, it’s a bit more complicated than that, but this simple story will suffice for now).
Ultimately, the maneuver is a bet on two things: (1) that reduced austerity will lead to more economic growth and (2) that inflation will occur and that the Euros that Ireland will repay in thirty years will be worth less than Euros that would have had to be paid now. For now, Ireland has dodged its upcoming payments and, it appears, refinanced its obligations on terms that will likely prove to be much more favorable.
As a business school student in Europe, watching the continent negotiate its currency union has been one of the most fascinating storylines to this year. As Cyprus enters its own bailout saga, Spain and Italy teeter on the brink, and Greece tries to live up to its commitments, Ireland’s apparent navigation towards a smooth landing from its fiscal crisis appears a bright spot.
The merits of the move are being hotly debated, and the true benefits will only be revealed in time, but I can sense those around me breathing a bit easier.