BAILOUT CHANGES:THE EUROPEAN Commission has ruled out any move by the incoming government to compel senior bondholders to bear losses on their investments in Ireland's banks.
Although Fine Gael and Labour each pledged during the election they would impose losses on the holders of senior bank debt, economics commissioner Olli Rehn made it clear yesterday such a manoeuvre would not find support in Europe.
“The issue of bondholders – senior debt in the banks – is not on the cards nor on the agenda concerning Ireland,” Mr Rehn told reporters in Brussels.
The stance of the commissioner, who did not elaborate, was in line with the European Central Bank’s opposition to any default on senior bank bonds.
The ECB, which is supporting Ireland’s banks to the tune of €130 billion, publicly reiterated its position in the immediate run-up to the election campaign.
Mr Rehn was responding to questions as to whether it was possible – as claimed by Fine Gael and Labour – to impose “haircuts” on senior bonds not covered by the State banking guarantee.
Measures to impose bailout losses on senior bank debt were discussed but ruled out when the outgoing government entered the EU-IMF rescue plan last November.
When Mr Rehn’s spokesman was asked yesterday to explain the commission’s opposition to such a departure, he said the EU-IMF programme agreed with the Irish State was “the best tool” to support Ireland’s economic recovery.
“We haven’t changed our minds since then, so that’s our position and so it remains,” he said.
“For the rest, the campaign is over and we are moving to another phase now where campaigners who are political leaders will take responsibilities in government, in administration.
“As I said, we are looking forward to discussing these issues, and all the issues on how to support the Irish people and the Irish economy, with a government that will be formed soon.”
Senior European sources say there is no prospect on the horizon of euro zone finance ministers reaching any consensus to tackle senior bank bond investors anywhere in the single currency area.
Given the frailty of many European banks, the authorities are reluctant to undermine confidence in senior bank debt anywhere else by setting a precedent for compulsory “haircuts” on such debt in Ireland. They fear such a move would prompt a “contagion” effect in European markets, possibly leading to bank runs.
Although Labour wanted to extend the EU-IMF loan term by a year and to drop key policy conditions in the deal, the senior European sources say euro area ministers and the EU institutions oppose reopening the policy elements in the pact.
Reiterating the commission’s support for “the Irish people and the next government”, Mr Rehn said the implementation of the EU-IMF programme was key for the revival of the Irish economy.
“Our common goal is to revive the growth dynamics of Ireland and to succeed in ensuring its debt sustainability.
“I know that there is discussion on several elements of economic reform and policy measures.
“I referred yesterday and expressed my position on the pricing policies of the loan package – ie the interest rate – which I think is a very important issue which should be dealt with in the context of a comprehensive response.”
Mr Rehn favours a reduction in the interest rate on loans, but such a move must be backed unanimously by the 17 euro ministers.
A rate reduction is under discussion in the negotiation of reforms to the euro zone bailout fund.
Diplomats close to the talks say only a modest decrease may be in prospect.
