A debt deal to cut the cost of Ireland's toxic bank rescue could slash €1 billion from tax hikes and spending cuts in upcoming budgets, the Government has claimed.

Taoiseach Enda Kenny said the agreement was not a silver bullet but declared that it would reduce state borrowing by €20 billion over the next decade.

“Step-by-step, this Government is undoing the disastrous banking policies that brought this state to the brink of national bankruptcy,” the Taoiseach said.

“The agreement has reduced Ireland's vulnerability from the huge debts taken on by Irish taxpayers as a result of the cost of rescuing failed private banks.”

Eoin Treacy's view Ireland's fiscal austerity measures have put a great deal of pressure on the domestic economy which has been in a depression. While this deal will not remove the need for addtional fiscal consolidation, public service rationalisation, property taxes and water charges, it does represent a step in the right dirction from a recovery perspective. (Also see David's piece in Comment of the Day on January 22nd).

The export sector has flourished as wage competitiveness has improved and the global economy has picked up. As a result the composition of the ISEQ Index, which was previously dominated by banks, has changed considerably to reflect the relative strength of this sector. For example, CRH with a 21.3% weighting is in the building materials sector. Ryanair (15.3%) is the largest European airline. Kerry Group (11.1%), Aryzta (7.1%) and Glanbia (2.23%) are food companies .

The current weighting of the Index bears very little resemblance to what was evident prior to the crash. Even so the fact that the banking sector has assumed a position of outperformance since July is also a positive. The ISEQ broke out of its base in early January and has been consolidating above 3500. A sustained move below that level would be required to question medium-term recovery potential.