No agreement on 'legacy' debt as €500bn fund is born
Noonan pushes for early decision on bank deal but March deadline now likely
EUROZONE finance ministers formally cleared the last hurdles to the long-awaited €500bn rescue fund yesterday but failed to decide whether the fund could be used to pay the "legacy debts" of Irish and Spanish banks.
Klaus Regling, the managing director of the new fund and the author of a report on Ireland's banking crash, said the question of "legacy assets" had not been discussed in "any European body" and seemed to suggest the issue may not be resolved for months.
Finance Minister Michael Noonan, meanwhile, admitted that there was now little chance of the country getting some kind of early agreement to remove some of the debt burden stemming from the €64bn bailout of the country's banks.
Speaking ahead of a meeting of eurozone finance ministers in Luxembourg, Mr Noonan said that while he would like a deal before December's Budget, he was already focused on having an agreement in place before the next €3.1bn is due to be paid on the promissory note used to pay for the Anglo Irish Bank bailout in March.
"It's my negotiating position and I've stressed the importance of an earlier decision [on the debt] from my perspective," he said.
"It would help doing the Budget arithmetic if something could be arranged or a statement of intent could be achieved before the Budget deadline," Mr Noonan said, as he gave the clearest indication yet that he had turned his attention to dealing with the promissory note due in March.
"I'm only on one side of the discussion but I certainly hope the March date would be feasible," he said.
Investors appeared largely indifferent to the latest setback. The cost of borrowing on the bond markets fell to its lowest level since before the bailout yesterday despite the faltering prospects for a deal on the Government's bank debt before the Budget.
The yield on the benchmark nine-year bond fell as low as 4.97pc at one point, before closing at 5pc.
Mr Noonan gave some detail on how the talks appeared to be progressing.
"The banking debt is falling into two areas of discussion, the promissory note and then direct capitalisation of the banks and it seems events are turning on direct capitalisation of the banks," he said yesterday.
"The political timeline on the pro-note is to get a new arrangement by March as the €3bn tranche due then is very onerous."
Ireland appeared to have secured a cut on its bank debt after a summit in June confirmed the new bailout fund, the European Stability Mechanism (ESM), could be used to directly recapitalise Irish banks, but those hopes appeared to be dashed when Germany, Holland and Finland said they were against the European Central Bank supervising all eurozone banks -- a key proviso for any deal on Irish debt.
ESM chairman Jean-Claude Juncker, who also heads the Eurogroup, hailed the ESM as a "historic milestone in shaping the future of monetary union".