Time is now right for bank debt deal, says Central Bank chief Patrick Honohan
Published 11/12/2012 | 05:00
CENTRAL Bank Governor Patrick Honohan has said he is confident a deal on Ireland's bank debt is possible, adding his weight for the first time to political efforts to get a breakthrough in negotiations.
Mr Honohan (pictured) said "the end of March" would be a good time to get a deal, adding that the Government required more time to repay the debt and bring spending under control.
"Now is the right time to hold these conversations," he said.
Mr Honohan sidestepped a question on whether the Government's plans could succeed without such a deal but he did say that it would make it much easier for the Government.
Finance Minister Michael Noonan said last month that the Government could return to the bond market next year without a deal.
"The planned repayment of the European Central Bank's aid comes at the wrong time," Mr Honohan told the 'Frankfurter Allgemeine Zeitung' in an interview.
"The Government is trying to win back trust on the debt market, and the current repayment plan is complicating this.
"Of course the money will be paid, but it should happen over a longer timeframe. That would make much more sense given the wider aid programme for Ireland. We need more time," he added.
The governor did not give any details about a possible plan, telling the German newspaper that he had ideas about how long the repayment schedule should be extended but was not sharing them with that newspaper's readers.
The main thing is to negotiate a sustainable plan, which would "lengthen the repayment deadline considerably", he added. Most economists suggest that the Government will extend the repayment period from a decade to four decades.
Asked why the European Central Bank, where Mr Honohan is a council member, is so slow to agree a deal, Mr Honohan said: "Whatever is done, it must be ensured that it cannot be seen in any way as state financing. It is complex, but in my opinion this is possible."
Asked why Ireland was the bailout country with the most chance of success, the governor said Irish politicians had recognised quickly that it was vital to act quickly and not give conflicting messages to the markets. He also hailed the fact that the deficits were falling according to plan and that 85pc of the cuts had been made.
Turning to Ireland's biggest challenges, Mr Honohan pointed to slowing growth in the eurozone and other regions.
Asked whether the pillar banks had enough capital, Mr Honohan said the important question was what would happen in future. We would have a better picture following next year's EU-wide stress tests which would shine a light on the banks' books, he added.
Mr Honohan's comments were made before Communications Minister Pat Rabbitte told RTE that the Government would not pay the next €3.1bn instalment linked to the nationalisation of Anglo Irish Bank.
Mr Rabbitte's comment was the first time a serving minister threatened to refuse payment but it was quickly dismissed by some analysts.
Owen Callan, a Dublin-based economist with Danske Bank, said in a note that "we would suggest not reading too much" into Mr Rabbitte's comments.
"The government is under pressure from the electorate to show they are fighting for the best deal for Ireland in terms of relief on the cost of rescuing its failed banking system," Mr Callan said.