EU leaders refused to sanction any default on our debt
Tuesday November 30 2010
THE Governor of the Central Bank last night backed the Government's claim European leaders were opposed to making bondholders share the burden of the €85bn rescue package.
The Coalition is coming under fire for sparing the bondholders in the banks from taking a hit on their investments, but it says it had no choice.
But Prof Patrick Honohan confirmed the ECB's view was that senior bondholders must be repaid fully as part of Ireland's €85bn bailout.
Prof Honohan said talk about hitting a relatively small block of unguaranteed senior bondholders -- accounting for 5pc of total bank debts -- was "floating around" in recent weeks.
"There was no enthusiasm -- I would put it no more strongly than that -- in European capitals for something to be done about those in a context in which the banking markets are quite nervous about action, much more aggressive action being taken against them," he said.
Prof Honohan appears to dismiss the suggestion Ireland was bullied by Europe in the deal.
"There is a certain amount of quid pro quo involved. There are concessions being made, if you like. A liberal attitude has been demonstrated by the ECB in regard to the funding of Irish banks. And it will continue while the confidence is being restored to underpin the Irish banking system," he said on RTE's 'News At One' yesterday.
Ministers have defended the Government's handling of the talks with the EU, ECB and IMF.
Transport Minister Noel Dempsey said the option of default on senior bondholders was put forward by the Irish negotiating team but the European Commission and ECB would not consider it. He said it was his understanding that "there would be no deal if we went down the route".
Mr Dempsey also said the international markets were putting pressure on Europe and "unfortunately we are part of the fallout for that".
Haircut
Fine Gael and the Labour Party criticised the Government for failing to force the bondholders to take a haircut in the negotiation of the package.
Meanwhile, Enterprise Minister Batt O'Keeffe claimed civil servants and social welfare claimants would have faced a 38pc cut in their income if the EU/IMF deal was rejected.
He also rejected suggestions that the €85bn bailout represents flushing money into "a black hole" in the banks just to protect German and other EU bankers holding Irish debt.
"We are living beyond our means. It meant that if we weren't able to borrow this money at a lower rate than what we could get out there on the bond market we would be paying up to 10pc now," he said.
"We are getting it (loans) for 5.8pc. We would have (had) to cut the salaries and wages of people on welfare in this country by 38pc -- that is the reality of life."
- Fionnan Sheahan and Ralph Riegel
Irish Independent
