Irish efforts to secure debt relief to increase

Ireland’s efforts to secure bank debt relief are set to intensify over the coming weeks, following two days of talks in Brussels at which Minister for Finance Michael Noonan achieved a measure of progress in the drive to exit the bailout.

Finance ministers are expected to agree to extend the maturity on the European Commission proportion of Ireland’s bailout loans by early March, following an approach by Ireland and Portugal to the euro group and a meeting of all 27 finance ministers.

This could coincide with the deadline for a deal with the European Central Bank on recasting the terms of the Anglo Irish promissory note.

While Ireland is not due to return to private markets until the autumn, there is a growing sense of urgency that the issue of debt relief needs to be settled long before that.

After a meeting yesterday of finance ministers in Brussels, chaired by Mr Noonan, economics commissioner Olli Rehn said a successful return to the markets for Ireland and Portugal was in the interests of the entire European Union.

Mr Rehn told The Irish Times the question of Ireland’s bank debt was “not unrelated to a successful completion of the bailout programme”.

“That is why the European Commission has been supportive of finding a substantial and constructive solution to this issue in order to reduce the debt burden of Ireland and further facilitate a successful outcome of the programme.”

Return to markets

Asked if Ireland would be able to return to private debt markets without a bank debt relief deal, Mr Rehn said: “It is important that Ireland and the European Central Bank work both constructively and effectively in order to find a solution to this issue which is . . . important for the sustainability of the Irish public finances.”

Ireland is seeking a lengthening of the maturity of short-term loans from the EFSF fund which would result in savings of “billions” of euro for the Irish exchequer, according to Mr Noonan.

Mr Rehn called for agreement to be reached on the direct recapitalisation process in the first half of this year. Ireland is hoping that the ESM – the EU’s permanent bailout fund – can be used directly to recapitalise AIB and Bank of Ireland, but divisions remain between member states about the application of the fund to so-called “legacy assets”.

The commissioner also raised the possibility of Ireland tapping the ECB’s bond-buying programme – outright monetary transactions (OMT) – as it emerges from the bailout.

“The option of combining a precautionary programme with the ECB’s outright monetary transactions is something that should not be ruled out and is one option that should be considered as a way of smoothing the way for a successful return to market financing,” Mr Rehn said.

“There is no inhibition on Ireland applying for OMT but we’d need to be fully back in the market first,” he said, indicating that Ireland plans two nine-year bond issuances before it would be in a position to apply for the ECB’s bond-buying programme.

Minister of State Brian Hayes, who represented Ireland at yesterday’s meeting of finance ministers, cautioned that any decision on lengthening the maturity on EFSM loans would have to go to parliamentary votes in a number of countries.

Nonetheless he expressed confidence that a deal could be done.