Irish finances threat after EFSF bond sale delay
Ireland's public finances were thrown into turmoil yesterday after the European bailout fund was forced to delay fresh borrowings for the Exchequer.
The main European bailout fund (EFSF) had planned to raise €3bn to lend to Ireland as part of our bailout agreement. But it was called off after lenders demanded a higher interest rate, following the latest Greek crisis.
Ireland would suffer if that had happened, EFSF officials said, because the fund passes its cost of borrowing on to Ireland under the bailout terms. Taxpayers would have ended up picking up that tab.
Some of the cash was earmarked to pay off €4.39bn of Irish government debt that falls due on November 11.
Last night, the Government said it had more than enough money to cover the upcoming debt repayments, and the cost of running the country even if the bailout payment was delayed.
The November debt payment will be made on time according to a spokesman for the Department of Finance.
But, it could mean dipping into Irish financial reserves to cover any short-term shortfall.
A spokesman for the Department of Finance said Ireland had €11.6bn of cash reserves at the end of October.
"Its a very healthy buffer of cash for the running of state services, including the redemption of the €4.39bn government bond on 11 November," he said.
The €11.6bn includes what is left from €25bn of bailout loans that Ireland has already received so far this year.
The Government must cover a deficit of €4bn for the last two months of the year according to the Exchequer returns published yesterday.
The EFSF blamed the current difficult market conditions for calling off the planned sale of €3bn of 10-year bonds. Analysts, however, questioned that logic. They said yesterday's news raised doubts about the EFSF itself.
The EFSF has the top AAA rating. Borrowing costs for top- rated borrowers, including Germany, fell yesterday but not for the EFSF.
"The fact that the EFSF cannot raise AAA money is an indictment of the deal announced by European leaders after last week's summit," said Brian Barry, an analyst at Evolution Securities in London.
At the summit, EU leaders agreed to "boost the firepower" of the EFSF but provided no details of how that will happen.
The EFSF says its bond deal has been delayed, not cancelled. It is hoping the meeting of the G20 group in Cannes will lead to an initiative that will calm the markets.
Even if the bond market isn't functioning next week, there is an option for the EFSF to raise money in the short-term markets. Ireland is also receiving bailout money from a separate EC fund and the IMF.