REHN ON IRELAND:EU ECONOMICS commissioner Olli Rehn said the Irish rescue plan will not compel senior bank bondholders to take a "haircut" on their liabilities.
Taking reporters’ questions last night after euro group and EU finance ministers endorsed the package at an emergency meeting, he backed a one-year extension until 2015 to the deadline for the achievement of the 3 per cent budget deficit target.
This move, which reflects lower growth prospects for the Irish economy, will not lead to any change in the €6 billion consolidation target for the 2011 budget and the cumulative €15 billion target in the years to 2014.
“The fiscal deficit will be below 3 per cent of GDP in 2015,” he told reporters.
While negotiators are known to have examined how they might compel senior bank bondholders to take part in the rescue, Mr Rehn said they “will not be involved” in the EU-IMF rescue programme.
“I’m aware that the Irish authorities are considering certain discounts for the subordinated debt but there will be no haircut on senior debt, not to speak of sovereign debt,” Mr Rehn said.
“The programme rests on three pillars. First, there will be an immediate strengthening and comprehensive overhaul of the banking sector,” he said.
“Second, there will be an ambitious fiscal adjustment to restore fiscal sustainability of the sovereign.
“Third, there will be substantial structural reforms enhancing economic growth, especially in the labour market.”
The aim of the banking measures was to create a “smaller and more robust financial system” with a stable financing structure.
“It notably includes higher minimum regulatory requirements, plus a capital injection early on to bring capital ratios above the minimum. Moreover a new and rigorous stress test will be conducted based on a severe scenario and moreover, new legislation on insolvency and bank resolution will be introduced.”
In a joint statement last night with IMF managing director Dominique Strauss Kahn, he said the rescue plan stands as a “forceful response to vulnerabilities in the banking system”.
These imposed a heavy cost on the budget and, in turn, hurt the prospects for growth that Ireland needs for an enduring solution to the crisis.
