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Kenny: we need a 'just' solution on debt

TAOISEACH Enda Kenny has warned fellow European leaders that unless Ireland gets a "just" solution to its banking debt crisis, our ability to rejoin the markets next year will be in jeopardy.

In correspondence to British Prime Minister David Cameron earlier this month, Mr Kenny said the dumping of bank debt on the shoulders of taxpayers "is not the way to help recovery" and that Ireland has "painful experience" of that approach.

Mr Kenny's stark warning that our return to the financial markets could be jeopardised if the bank debt is not lifted from the shoulders of taxpayers comes amid a major split between the IMF and the ECB over how best to help Ireland.

UCD economist Colm McCarthy, who authored the An Bord Snip Nua report, said the time had come for the Government to start "shin-kicking" at European level in order to ensure Ireland's banking debt was taken off the shoulders of the taxpayer.

He said that if a deal is agreed for Spain in the coming days, as expected, then it must be applied retrospectively to Ireland.

"The rescue of the banks was done as a result of the coercion of the European Central Bank, and any deal for Spain must also be applied to Ireland."

He described as "passive" the Government's bid to date in resolving the debt crisis.

But in a hard-hitting letter to Downing Street, Mr Kenny cranked up the pressure for greater help from Europe to solve the bank debt crisis.

Mr Kenny wrote: "We must avoid the mistake of allowing banking crises to develop into sovereign crises in those countries and beyond by way of contagion. Ireland has painful experience of that approach. It is not the way to help recovery."

Mr Kenny said that the return to the markets is contingent on a viable solution being reached at European level, which will help enhance market perception of Ireland's debt position.

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He added: "To return to the markets next year as planned, we need a pan-European political solution to this banking crisis."

Mr Kenny said that it was the cost of the public bailout of the banks, €64bn, that undermined Ireland's credibility and forced us into the troika bailout in 2010.

"The bailout of private creditors of Irish private banks at €64bn undermined market confidence in Ireland's creditworthiness, forcing the country to seek external financial assistance from our EU partners and the IMF," he said.

Tanaiste Eamon Gilmore, who was involved in the wording of the letter, yesterday said Ireland's prospects of returning to the financial markets will be greatly enhanced by re-engineering our bank debt in such a way as to improve Ireland's debt sustainability position.

"There is also an important issue of fairness involved, since Irish taxpayers have paid too high a price for our contribution to European financial stability," his spokeswoman said.

The IMF issued a stark warning that unless major assistance is forthcoming from Europe, the country's chances of rejoining the markets are severely limited.

In its fiercest criticism of the ECB to date, the IMF said the extra debt burden was imposed on the Irish state balance sheet "to repay holders of unguaranteed senior bank bonds, as considered appropriate by the ECB due to concerns about pan-European financial stability.

"This lack of burden-sharing on senior bank debt as part of the resolution process added to government debt."

Sunday Independent