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No write-down, no referendum

WITH Greece apparently edging closer to a deal with its private-sector bondholders, to whom it owes over €200bn, hopes that a debt write-down can be confined to one eurozone country seem very optimistic.

While Greece and its creditors, despite squawking on the part of some hedge funds, may be about to finally put that country's long-running debt negotiations to bed, Portugal is beginning to look like the next eurozone country that will impose a 'haircut' on its creditors. With yields on Portuguese 10-year government bonds hitting 15 per cent at one stage last week, the bond markets are signalling a significant write-down of that country's debt.

If the Greeks and the Portuguese succeed in forcing their creditors to accept major haircuts then what are the chances of Ireland's creditors escaping unscathed? While we were assured during last week's visit by the Troika that the bailout agreed in November 2010 is proceeding according to plan, would it be possible for an Irish government, particularly one with a European referendum to pass, not to demand a Portuguese or Greek-style write-down?

Almost certainly not. Even if it were economically possible for us to bear the full burden of the bank's losses, it would be politically impossible, particularly if Greece and Portugal impose haircuts. Expect the Irish Government to demand major concessions on both the €30.7bn of Anglo promissory notes and the €29.25bn of Nama bonds in advance of any EU treaty referendum.

Sunday Indo Business