Business Irish

Sunday 19 November 2017

Noonan hopes to strike euro bank-debt deal before Budget

Ireland's Finance Minister Michael Noonan waits for the start of an eurozone finance ministers meeting at the EU Council in Brussels. Photo: Reuters
Ireland's Finance Minister Michael Noonan waits for the start of an eurozone finance ministers meeting at the EU Council in Brussels. Photo: Reuters

Sarah Collins in Brussels

Cracks emerge in plan to allow ECB bypass states and fund institutions directly -- pushing borrowing costs up in Spain

FINANCE Minister Michael Noonan has said he hopes a deal to reduce the burden of Ireland's bank debt can be reached before December, when the budget is published.

"That would suit our domestic agenda and it would also suit the IMF timeframe of having to adjudicate on whether we're funded for 12 months ahead or not, and they need to do that some time in the autumn," Mr Noonan said yesterday on his way in to a meeting of eurozone finance ministers in Brussels.

He said the deal, agreed in principle at an EU summit two weeks ago, would be "ambitious", but he refused to say whether the government was seeking to alleviate the entire €64bn injected into or promised to the banks since the crisis hit in 2008.

"We don't particularly want to get into talking numbers yet because it has not advanced that far, but we'll be ambitious in our ask," he said.

Deal

The summit deal included a pledge to allow the eurozone's future rescue fund, the European Stability Mechanism (ESM), to inject rescue loans directly into ailing banks, bypassing the state, on the condition that banks submit to euro-level supervision.

It also commits euro finance ministers to "examine the situation of the Irish financial sector with a view of further improving the sustainability" of Ireland's bailout.

The Irish Independent understands that this would entail the ESM assuming government-owned or guaranteed debt in the country's banks.

But government officials have already been in talks for a number of months with the European Central Bank to restructure a €31bn promissory note, or IOU, issued in 2010 to wind down the former Anglo Irish Bank.

"We're looking at a number of alternative options now but we're not jettisoning anything or any work that has been done already," Mr Noonan insisted.

The ECB is keen to resolve the promissory note issue as the IOUs are being used by the former Anglo Irish Bank -- now merged with Irish Nationwide and known as the Irish Bank Resolution Corporation -- to obtain emergency loans from the Irish central bank.

The ECB wants to wean banks -- particularly zombie institutions such as IBRC -- off this kind of crisis support.

Concessions on Ireland's bank debt hinge on the creation of a euro bank supervisor -- which the European Commission is drawing up -- and the deal done for Spanish banks.

"Matters can't be resolved until that's done," Mr Noonan said. "As soon as possible would be our preferred timeline but we're not the only people who have a very strong interest in this," he added.

Markets have rounded on Spain and Italy as cracks emerge in the summit deal, sending borrowing costs in the two countries rocketing once again.

Scrambling

Euro finance ministers were last night scrambling to clarify the finer points of the deal after Finland and the Netherlands rowed back on a proposal to allow the ESM to buy the bonds of troubled governments on the open markets.

Eurozone officials also cast doubt on the Spanish deal by insisting countries stand behind ESM bank loans with a state guarantee.

ECB president Mario Draghi insisted yesterday that this was not the case. "As soon as the ESM were to enter into force, it would replace public debt with ESM money," he said.

Irish Independent

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