OFFICIALS IN the EU-IMF mission to Dublin are examining how senior bondholders could be compelled to pay some of the cost of rescuing Ireland’s banks.
As talks on the €85 billion bailout deal intensify, the Government is trying to reduce the cost to the State by minimising the interest bill on the emergency loans.
In a statement last night, German chancellor Angela Merkel and French president Nicolas Sarkozy urged a speedy conclusion to the talks on the bailout package after a phone call in which they discussed “current problems” in the euro zone.
The EU-IMF rescue may be announced before financial markets open on Monday as negotiators are working towards unveiling the plan, possibly on Sunday.
Measures to repair the banking system are expected to be announced over the weekend, although it is unclear whether details would also be unveiled on how the fund would be used to assist the Government’s €15 billion economic recovery plan.
The negotiators are taking legal advice on the steps required to ensure all classes of bank bond investors assume a burden in the restructuring process. One of their prime concerns is to avert the threat of an immediate court challenge from any senior bondholder or a court objection at a later date.
Several proposals are on the table, said a source. At present attention centres on two similar schemes. In the first, bank debt would be converted into equity shares. In the second, bond investors would be given the choice of injecting fresh capital into banks or face a cut in their investment.
The source said there was a “common understanding” between delegations from the EU Commission, the European Central Bank and the IMF that senior and junior bondholders should each pay a share of the rescue costs.
The first step would be to seek to “persuade” senior bondholders to participate in the bailout, said the source. “If that doesn’t succeed, the question is how can you force them in a legally-sound way.”
The spokesman for EU economics commissioner Olli Rehn declined last night to comment on the burden-sharing proposals as talks on the restructuring of the banks are ongoing.
Earlier, he rejected Fine Gael claims of a policy difference between EU and IMF officials on the question of compelling senior bank bondholders to take a discount on their investment. “We are discussing with the Irish authorities as a team, one single team, the European Commission, the European Central Bank and the IMF,” the spokesman said.
A Fine Gael spokesman claimed yesterday that the IMF delegation was open to the Government’s four-year plan being replaced.
He was speaking after meetings between the Opposition parties and representatives of the IMF, the EU and the European Central Bank.
The Labour Party said its meeting with the delegation lasted for over an hour and there was a useful exchange of views.
A source close to the discussions said the three bodies told the parties that specific budget conditions for 2011 would have to be met although conditions would be less specific for the final three years of the programme. A memorandum that will be signed when talks between the bodies and the Government are concluded which will lay down the conditions to which the State must comply if it is to draw down the loan facility of €85 billion.
In the Dáil yesterday Taoiseach Brian Cowen said the Government’s four-year plan would help members of the public to plan ahead for their economic futures. If other parties said changes could be made they would have to make sure their proposals added up and didn’t create more uncertainty at a time when this country critically needed it, he said.