Sunday 26 February 2017

Fund financing Irish rescue will borrow €5bn through sale of bonds

Donal O'Donovan

Donal O'Donovan

THE fund set up by eurozone countries to finance the bailout of Ireland and other stressed countries will borrow €5bn by selling bonds next week.

The European Financial Stability Facility (EFSF) announced yesterday that it planned to issue between €3bn and €5bn of bonds by the end of this month.

A source at the fund told the Irish Independent last night he expected the total to be €5bn and said the bonds would be issued next week.

About 70pc of the funds raised will be loaned to Ireland as part of the EFSF's €22.5bn contribution to the Irish bailout package. The fund needs to retain part of any money it raises as cash in order to keep its top AAA credit rating.

The shape of the EFSF is a hot topic for European finance ministers meeting in Brussels. Some ministers want to increase the fund beyond the current €440m maximum so that funds are available to cope with almost any size of bailout.

Bailout

Other ministers and president of the European Central Bank (ECB) Jean-Claude Trichet want it to replace the ECB as the buyer of last resort of European government bonds.

The fund was set up after the Greek bailout. Next week's bond deal will be the first time it raises money. So far Ireland is the only country that has agreed to accept EFSF funds.

US bank Citi, the UK's HSBC and Societe Generale of France have been mandated to handle the bond sale.

Meanwhile, the ECB spent €2.313bn buying government bonds last week in the secondary market, up from just €113m the week before.

The massive increase in bond purchases is the first clear evidence the ECB was the main driver of a sharp fall in the cost of borrowing for stressed European countries last week.

The bank calmed the debt market in an effort to help Portugal and Spain to borrow by issuing bonds. The latest purchases take the total amount of bonds the ECB has bought since May to €76.5bn.

It means the ECB, which is a reluctant buyer of the bonds, is one of the main creditors of countries including Ireland and Portugal.

Irish Independent

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