Ireland and Greece will soon pay less for bailouts
IRELAND and Greece will soon pay less for their bailouts, the European Union said yesterday as officials tried to cobble together a second rescue package for Athens to avert a disorderly overhaul of its debt obligations.
"The Commission is clearly in favour of a rate cut" for Ireland, a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn said. "The Commission is against debt restructuring."
The prospect of a cut to the bailout interest rate came as both Taoiseach Enda Kenny and Central Bank governor Patrick Honohan implied that Ireland would run into serious problems if the country failed to grow and changes were not made to the €85bn bailout. Changes may come as early as next week, Mr Kenny told the Dail.
EU finance ministers are due to meet next week to approve a €78bn rescue for Portugal amid lingering uncertainty over whether Finland will be in a position to give the required agreement.
Pressure is mounting for decisions on Ireland and Greece as well, but sources said no action was likely on Greece until June at the earliest.
Moody's warned later that Ireland's ability to return to the bond markets could be hampered by developments in other peripheral euro area nations.
Standard & Poor's, mean- while, slashed its rating for Greek bonds, leaving Greece the lowest-rated country in Europe and just one notch above Pakistan. S&P suggested Greece would need much more radical measures to make the country's €327bn debt mountain sustainable, saying Athens may have to restructure debts by cutting the principal by 50pc or more.
Greek and European officials denied Greece is planning to leave the euro, although one German government economic adviser, Peter Bofinger, told Reuters that unless there was a comprehensive solution for all eurozone debt problems, "I'm not sure whether the euro area will remain intact for the next 12 months".
Credit default swaps on Greek and Irish bonds reached new highs yesterday as the yield on the Irish two-year bond hit a record 12.45pc in London. The cost of insuring Greek bonds now indicates a 68pc likelihood of default within five years.
"One by one, they will all need to renegotiate," said Bill Blain, co-head of strategy at broker Newedge in London. "Greece is just a canary in the coal mine."
Bloomberg reported that credit default swaps for Irish bonds rose as "speculation Ireland will renege on its commitments was fuelled by economist Morgan Kelly's" article over the weekend which suggested that Ireland faces a "prolonged and chaotic national bankruptcy."
Irish banks, which have seen massive outflows of money in recent months, denied that Prof Morgan Kelly's article had any effect on deposits yesterday. "There has been no negative reaction from retail depositors to the article, in fact we have been experiencing strong deposit growth in the retail sector over recent weeks and this is continuing," said a source at one of the major banks.