GERMAN CHANCELLOR Angela Merkel has called for a swift deal to give emergency loans to Greece, saying as she backed the rescue that no country should meet the fate of collapsed bank Lehman Brothers.
With markets roiled by uncertainty over the plan, Dr Merkel set aside her doubts as US president Barack Obama lent his support to the clamour for a deal from the International Monetary Fund (IMF) and the European Central Bank (ECB).
It emerged in Berlin yesterday that Greece could receive as much as €120 billion over three years.
As talks on a drastic austerity plan near completion in Athens, Dr Merkel is set to introduce legislation on the plan on Friday of next week.
Amid anxiety about market contagion spreading from Greece to other debt-reliant countries, Spain’s credit rating was downgraded yesterday and Greece’s borrowing cost rose yet again.
“This is something that is of great concern to the president and we’re monitoring it very closely,” said White House spokesman Bill Burton.
The difference between the cost of Irish 10-year State borrowing and the cost of benchmark German borrowing widened to 2.55 percentage points at one stage yesterday. This compared to 2.2 percentage points on Tuesday.
The cost of raising funds over two years also soared.
Concerns eased a touch after Dr Merkel’s comments but the premium attached to Irish 10-year bonds over their German equivalent remained at 2.23 percentage points as European markets closed last night. This brings spreads back to levels seen in July last year, with analysts expecting more volatility as the Greek crisis plays itself out over coming weeks.
The latest downward trend in Irish bonds comes as the agency charged with managing Irish debt conducts an international “roadshow” aimed at reassuring investors. The National Treasury Management Agency (NTMA) held an event in Paris yesterday, having addressed investors in London on Tuesday.
Deirdre Ryan, an analyst with Goodbody Stockbrokers, acknowledged yesterday that it was not ideal for the Republic to be “back in the firing line” on its debt. But she said the decline in Irish bonds would have few short-term consequences for Irish Government fundraising because of the cash balances already raised by the State this year.
The exposure of Irish banks to Greek debt is “negligible” at less than €40 million, Minister for Finance Brian Lenihan told the Dáil last night. He condemned as “wildly inaccurate” the claim made earlier in the day by Fine Gael leader Enda Kenny that the exposure of Irish banks to Greek debt was of the order of €7 billion.
It is understood that international banks operating in Ireland, who are not covered by the bank guarantee scheme, have a significant exposure to Greek debt of about €6 billion.
Dr Merkel has long held reservations about the rescue and she faces huge resistance to it in Germany, the biggest likely lender to Greece in the euro zone. In a mid-term election on Sunday week, she risks losing her majority in Germany’s upper house of parliament.
After ramping up pressure on Greece by calling on Monday for drastic budget cuts, she changed tack yesterday to say the rescue was crucial for the sake of the euro zone.
“I think the handling of the Greece case shows that everyone knows we cannot allow the same situation with countries as with Lehman Brothers,” she said.
Details of a national solidarity bond which will allow citizens to invest in the Republic’s economic recovery will be revealed today by Minister for Finance Brian Lenihan.
Mr Lenihan announced his intention to launch the bond in last December’s budget and it will be open to public subscription after the May bank holiday weekend.
The bond will be available for subscription through the network of 1,200 post offices from Tuesday.
Labour Party deputy leader and finance spokeswoman Joan Burton last night welcomed the Minister’s plans.