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New Cabinet could alter bailout terms -- Honohan

THE next Government will receive a "sympathetic" hearing from the international community if it wishes to change the details of Ireland's €85bn bailout plan, Central Bank Governor Patrick Honohan said yesterday.

The comments were made in a speech to the Institute of International and European Affairs, where Prof Honohan also said it was becoming "increasingly" evident that selling Irish banks to foreign owners is the "best" way to restore order to our financial system. Prof Honohan also stressed that while the bailout "buys time", the policies being adopted were largely drawn from those that the Government was already pursuing.

"We can be confident that if a new government were to want to substitute alternative measures which were both economically efficient and of equal fiscal effect, it would receive a sympathetic hearing from the funders," he added.

The comments were echoed by Finance Minister Brian Lenihan who last night issued a statement saying that it had "always been the case" that the existing Government or any new Government could "substitute alternative measures" to those outlined.

Prof Honohan stressed that the bailout "does not itself reduce" Ireland's two key problems of unsustainable debt and fears of further banking losses, but did "accelerate" efforts to resolve the banking crisis and constrain the Budget deficit.


Prof Honohan said Ireland's predicament could be further eased by an insurance scheme against banks' future losses which didn't form part of the bailout but "could be put on the table at some stage".

Such a scheme would be "even more effective under the present circumstances than additional capital" since it would restore market confidence in the banks and would also lower the "perceived risk to the State".

"Offering such insurance even at a premium in excess of the fair value expected claims on such insurance would evidently be very attractive to a country in Ireland's position," he added.

Earlier in the week, Financial Regulator Matthew Elderfield said that such an insurance scheme could be offered by the EC's bailout fund after its framework is reviewed later in the year. The EU and IMF can offer only loans, not insurance but Dr Honohan said it was a political decision as to whether insurance was made part of the new EU rescue schemes.

Prof Honohan has been talking up the benefits of selling the banks since early November, when he said the Government should dispose of its banking stakes "at the earliest possible opportunity". At the time the Government owned EBS, Irish Nationwide and Anglo and had minority stakes in AIB and Bank of Ireland. Since then, the Government has effectively taken a 93pc stake in AIB.

"Increasingly, it seems evident that placing the continuing parts of the [banking] system on a firm footing can best be done through the involvement of new foreign owners," Dr Honohan said yesterday.

Irish Independent