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Sunday 22 October 2017

Guarantee renders debt deal hopes 'all but dead'

EU sources say Irish issue has been 'parked' and change is 'unlikely'

The Government's hopes of achieving a deal on €25bn of so-called legacy bank debt are "all but dead" because of the bank guarantee issued in 2008, top European sources have confirmed.

Following the decision to force losses on to senior bondholders as part of the Cyprus bailout deal with the Troika, discussion has reignited around Ireland's attempts to get a large proportion of the debt associated with bailing out Allied Irish Banks, Bank of Ireland and Permanent TSB.

But two top European sources have confirmed to this newspaper that the issue of Ireland has been "parked" and any change to its current status was "highly unlikely".

"Your debt was as a result of the guarantee you issued, or your previous government issued," said one senior EU official. "That was the most far reaching of any guarantee – and it was not Europe who asked Ireland to do it."

Leading economists in Ireland too have said that in the wake of the Cypriot deal, the Irish debt aspirations are now all but impossible.

"Voters in Germany and elsewhere have grown tired of lending money to Europe's periphery, never mind giving it away. So, morality aside, a compensatory deal for Ireland is not on the cards," UCD economist Karl Whelan said.

The comments follow similar remarks made by German Finance Minister Wolfgang Schauble last Tuesday, who again questioned the need for any "radical change" in Ireland's bailout programme.

Dr Schauble said the previous Fianna Fail-Green administration had "sole responsibility" for the "farthest reaching guarantee" of the financial crisis.

However, he said Ireland had won back international trust "with the help of European partners and with a great engagement of itself" in the wake of the 2010 bailout.

"A radical change of the programme would bring with it the danger that trust, which has just been won back, would be lost," Dr Schauble said. "Trust is a currency that is hard-won but quickly lost... therefore it is of great importance that the programme is implemented successfully as agreed."

Officially Ireland is insisting the deal is still on, and it has also emerged Finance Minister Michael Noonan is pressing ahead with its €1.2bn cash contribution to the new European bailout fund despite the fresh doubts over whether it will take over our old bank debt.

Taoiseach Enda Kenny said EU leaders had agreed last year to break the vicious circle between bank debt and national debt. "We will spare no effort in working to deliver on that commitment. The discussions in that context are being led by the Minister for Finance," he said.

A new report shows that the Government has already paid €509m into the new bailout fund set up to help troubled eurozone countries. And it is due to make three more payments of €254m – next month, next October and in April 2014 – to bring its total contribution to €1.2bn.

In the Dail, Mr Kenny specifically referred to the ESM bailout fund, saying that the agreement to set up a single supervisor for all European banks would "pave the way" for it to directly recapitalise banks.

Irish Independent

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