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Government and troika 'deadlocked' over assets

Mass EU downgrades and breakdown of Greek debt talks may cause fiscal carnage

The Government remained opposed last week to pressure from the European Central Bank/European Union/International Monetary Fund troika to double the volume of State asset sales during their term of office to €4bn.

A source close to the talks described the situation as "deadlocked", with the Government prepared only to agree to raise €2bn from assets sales.

"There is no agreement on any of the key issues [around asset sales]," he said, "despite the troika being pleased overall with Ireland's progress."

The Government is also in disagreement with the review delegation over what the billions raised from any sale of State assets should be used for. Government representatives are pushing for the majority of any funds raised to be used to stimulate employment and exports.

The ECB/EU/IMF, however, want most of the money to be used immediately to pay down debts.

"The IMF is more flexible," a second source with knowledge of the talks told the Sunday Independent, "but the ECB and EU are taking a tougher line. They want their money back -- and they are less concerned about the crippling effect this will have on the economy."

The only asset the Government has indicated it is prepared to sell is a minority stake in the ESB. The troika, however, wants additional assets, such as bundling together the State's renewable-energy assets to be earmarked for immediate sale.

There is more agreement between the Government and the troika delegation on the need for more budgetary cuts, public-sector wage-bill changes and labour-market reforms to halt the recession.

EU officials said last week that, while technical talks were continuing on a variety of ways to re-engineer the massive debt burden related to Anglo Irish Bank, this would not be agreed by the end of this month's bailout review mission.

Restructuring the terms of Anglo's bailout, and in particular a €30bn troika IOU to the bank carrying interest of a whopping €17bn, is a central plank in the Government's plans to return Ireland's debt to a sustainable level.

Citigroup chief economist Willem Buiter said last week that Ireland was inevitably heading for a second bailout unless it managed to renegotiate the terms of the Anglo bailout.

Major European downgrades by S&P, notably for France and Austria, coupled with Friday's breakdown of Greek debt talks, are likely to cause mayhem on the markets this week. France's downgrade will strip away its triple A rating, making it far more difficult to fund any bailout.

Sunday Indo Business