Bond markets to be tapped for bailout
Published 30/11/2010 | 05:00
THE money to bail out Ireland and its bondholders will come from the bond markets, the Irish Independent has learned.
The move could make the European debt crisis worse because of "crowding out" as bond investors opt to lend to rescue funds instead of struggling countries, thereby driving up the cost of debt.
Last night it emerged the European Financial Stability Facility (EFSF) had been sounding out bond investors about a multibillion-bond deal that could be completed by the second half of January.
The EFSF is providing €22.5bn of the €67.5bn Irish bailout deal -- excluding the €17.5bn from the State's cash reserves and the National Pension Reserve Fund.
The money will be borrowed from bond markets and then loaned to Ireland as the EFSF's contribution to the Irish debt package, at a far higher rate of interest.
The EFSF has not issued bonds before but a spokesman for the fund confirmed that meetings had been held with as many as 150 potential bond investors in Europe, the US and Asia in recent weeks.
The source said the EFSF had not raised any money to date.
It is understood the EFSF will use the German debt management office to issue its bonds, because it does not have the infrastructure to do its own deal. It will raise the money in its own name but the bonds will be guaranteed by the 16 eurozone member states.
The reliance on the bond markets to fund the Irish rescue will make it harder for countries like Portugal and Spain to issue their own bonds because the EFSF will be seen as a safer haven for investors when it issues debt.