Monday 19 March 2018

Cut us a debt deal and we'll be back in bond markets - Noonan

Minister piles pressure on EU negotiators to reduce €64bn figure after fellow finance ministers agree for him to do so

President of the German Constitutional Court Andreas Vosskuhle (right) arrives with other judges for the hearing on
the European Stability Mechanism (ESM) and the fiscal pact in Karlsruhe yesterday.
President of the German Constitutional Court Andreas Vosskuhle (right) arrives with other judges for the hearing on the European Stability Mechanism (ESM) and the fiscal pact in Karlsruhe yesterday.

Sarah Collins in Brussels

A DEAL to cut the Irish debt burden is key to a full return to the bond markets, Finance Minister Michael Noonan said last night.

The minister is piling pressure on EU negotiators to free Ireland from some or all of the €64bn cost of rescuing the banks after being given the green light to renegotiate the issue by fellow ministers in Brussels.

Irish negotiators are gambling that the EU authorities are under pressure to deliver at least one "bailout success" story and that Ireland could fit the bill, if markets see a big debt reduction following a new deal.

If the debt relief were to apply to the totality of the banking debt, it could shave 40pc off Ireland's debt-to-GDP ratio -- which is predicted to peak at 120pc next year.

"I don't know what the result will be and I don't want to predict the result but we'll be ambitious in our ask," Mr Noonan told reporters after an EU finance ministers' meeting yesterday.

"Certainly we would like Ireland's debt position to be sustainable because that's what the markets look at," he said. "Their test of allowing you back at low interest rates is the sustainability of your position and that's the objective."

The NTMA last week tested the money markets for the first time since September 2010, and is expected to return again in the autumn, before EU-IMF loans run out in 2014.

The European Commission confirmed yesterday that a deal would be ready on paper by the end of October, in time for December's Budget.

By European standards it's an extremely tight deadline.

Mr Noonan pushed for the October deadline to placate the IMF, which needs to make sure debtor countries can sustain themselves for the following 12 months.

"What I would envisage would be: an agreement would be negotiated, it would be announced, that would have a positive effect on the markets, which would be our primary concern," Mr Noonan said.

It is still unclear exactly when the deal would become a reality, with talks continuing on two tracks:

• One is to shift the burden of the €32bn injected into Ireland's pillar banks off the shoulders of the taxpayer and onto some sort of third party. That could involve handing a share of the State-controlled banks themselves to an EU related third party, or holding the €32bn off balance sheet in a so-called Special Purpose Vehicle.

• The second is to lower the interest rate and extend the repayment period on €31bn in promissory notes -- or IOUs -- issued to pay off bondholders in the former Anglo Irish Bank.

The key to the deal is the euro's future rescue fund, the European Stability Mechanism (ESM), which EU leaders agreed in June should lend directly to banks, an emergency power they hope will calm the rout on Spanish bank and sovereign debt markets.

The European Central Bank has insisted that a similar deal be worked out for other bailout countries, which, in Ireland's case, would see the ESM take over the government's equity stake in the banks.

Separately, the Government needs to close a deal on the promissory notes before March, when a second €3.1bn payment to Anglo Irish Bank -- now known as the Irish Bank Resolution Corporation -- is due.

Eurozone sources say that the most likely solution would be for the ESM to issue a bond in place of the notes, at a lower interest rate and with repayments spread over a longer period of time.

That bond could then be used by IBRC to continue to obtain emergency loans from the Irish Central Bank, which it is doing now using the promissory notes as collateral. "We'll have to talk at different levels to push it forward," Mr Noonan said.

However, at Germany's insistence, a solution won't be possible until a euro-level banking supervisor is up and running, which is unlikely to be before the middle of next year.

Irish Independent

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