Bailout changes won't hasten Ireland's return to the bond markets or alter the interest rate we're paying
Q: What exactly has the EU agreed?
A: Yesterday, EU finance ministers agreed that when the European Stability Mechanism, the renamed EU/IMF bailout fund, comes into force in two years' time, it will not have preferred creditor status in the case of countries such as Ireland, Portugal and Greece, which are already receiving bailouts.
Q: Why does this matter so much?
A: If the ESM had preferred creditor status for countries, including Ireland, that are already receiving bailouts it would be virtually impossible for them to re-enter the bond markets as investors would be afraid that, if they got in trouble again, the ESM would be able to jump the queue and get its money back first, leaving little for bondholders.
Q: Does this mean that Ireland will be able to return to the bond markets as scheduled in late 2012?
A: Not so fast, hang on there a minute. Yesterday, 10-year Irish government bonds were trading at less than two-thirds of their face value and yielding more than 11pc. This makes an Irish return to the bond markets any time soon extremely unlikely. The best that we can possible hope for is to raise a token amount in late 2012 or late 2013, but the grim reality is that we will be dependent on the EU/IMF for the foreseeable future.
Q: How does yesterday's agreement affect Finance Minister Michael Noonan's proposals to "burn" the senior bondholders of Anglo Irish and Irish Nationwide?
A: Mr Noonan's statement, made in Washington last week, that he was proposing to "burn" the Anglo and Irish Nationwide senior, or secured, bondholders, caused outrage at the ECB. Yesterday in Brussels, Mr Noonan seems to have maintained a discreet silence on the subject.
Q: What does yesterday's agreement mean for the interest rate we are paying on our bailout?
A: Absolutely nothing. With French President Nicolas Sarkozy apparently still dead-set against any reduction in the penal 5.8pc interest rate Ireland is paying on the EU portion of its bailout, Mr Noonan's efforts to cut the bailout interest rate are hitting a brick wall.
Q: What does the IMF make of all this?
A: From comments made yesterday by its acting managing director John Lipsky, it is clear that the IMF is growing increasingly exasperated at the EU's continuing failure to sort out the Greek mess.