Irish borrowing on open market ‘easier’ under EU plan
Ireland’s ability to borrow on the open markets next year could be made easier because EU finance ministers may make it more attractive for private investors to buy into the debt of bailed out countries.
Until now, European creditors, like the European Central Bank, had preferred creditor status putting them at the top of the queue to be paid in the event of default of sovereign debt.
However, Jean-Claude Juncker, who chairs the meetings of euro-zone finance ministers, has announced the European Stability Mechanism (ESM), which comes into force in mid-2013, will not have preferred creditor status when it helps countries that have already been bailed out.
If the plan is introduced, and it is only at an embryonic stage, private investors would be enticed into buying the debts of countries like Ireland in the knowledge that the preferred status will run out in 2013.
This would also lessen our dependence on loans from Europe.
The move was welcomed by Finance Minister Michael Noonan who is meeting with EU ministers in Luxembourg today.
“No matter how well we were doing under the programme it (the ESM preferred credit status) was blocking us potentially from getting back into the market,” he said.
“We have reconnected again diplomatically and we’re able to make a case now to other european countries, it is very good news for Ireland and will help us get back into the markets.”
One stumbling block is that Germany will need to give the plan political approval given that it increases the risks to taxpayers in those countries contributing to the permanent rescue fund.
Until now European creditors had to be repaid before any private investors and many economists had said that this was a deterrent to any banks and other investment funds from lending any money to already struggling countries.
“This is a positive move for private investments for nations who have been rescued,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.
“However, there are still obstacles like our ability to deal with our public sector deficit.”
Mr Juncker also said euro zone finance ministers had called new emergency talks on Greece for July 3 to finalise a financial rescue package to avert a default by the country.
European finance ministers also agreed to raise guarantees for bailout loans given out from the current rescue fund to €780bn from €440bn, said Klaus Regling, who manages the current Luxembourg-based EU rescue fund.
Meanwhile, an inspectorate from the EU/IMF will visit Athens tomorrow to assess progress on the implementation of Greece’s austerity plans, an EU official has confirmed.
"They will be here Tuesday and Wednesday at least," said Carlos Martin Ruiz de Gordejuela.
"It will be a technical mission," Mr Ruiz de Gordejuela said.
The officials will monitor Greece’s progress on a fiscal plan agreed in May.
However, Eurozone finance ministers have postponed a decision to give Greece a further €12bn loan, until the Greek government passes a €28bn austerity package.
After a seven-hour meeting in Luxembourg, which broke up early this morning, Luxembourg Prime Minister Jean-Claude Juncker, who chairs the regular meetings of the 17 eurozone finance ministers, said that Greece will get the next €12bn of its existing €110bn bailout package in early July, but only if it manages to pass €28bn in new spending cuts and economic reforms by the end of the month.
Earlier, Tánaiste Eamon Gilmore has said it is not sustainable for the European Union to withhold a reduction of the interest rate Ireland has to pay on the EU/IMF bailout.
Mr Gilmore is due to hold a bilateral meeting with his German counterpart Guido Westerwelle today in Luxembourg.
He said it does not make sense to withhold the cut from a country that is implementing its programme and making progress.
The Tánaiste said Government Ministers are continuing to work to break the logjam.
However, he said he was not in a position to make a prediction if a breakthrough might happen at a meeting of EU leaders this week.