Kenny welcomes Spanish bailout

Mon, Jun 11, 2012, 01:00

Taoiseach Enda Kenny has welcomed the €100 billion rescue package for Spain’s banking sector and said it would bring stability to the euro zone.

Speaking to reporters in Castlebar, Co Mayo, Mr. Kenny rejected claims by the Opposition that Spain had got a better deal than Ireland.

He said the main difference was that Ireland was put into a package which dealt with bank recapitalisation and funding to address the country’s budget deficit.

Spain’s bailout was just to recapitalise its banks. Spain would have to pay the same interest rate as Ireland in that regard and will have to underwrite that, he added.

The Taoiseach added: “Spain have to deal with their reduction to 3 per cent by next year. Ireland has a further year in which to do that”.

Mr Kenny said the issue of the promissory notes to Anglo Irish Bank were part of ongoing discussions between the Government and a "troika" of the International Monetary Fund, the European Commission and the European Central Bank. 

Minister for Finance Michael Noonan said the bailout would provide “much-needed confidence and stability in the euro zone” and was particularly important for Ireland’s economy.

With no sign of any breakthrough in the push to restructure the Anglo Irish Bank promissory note scheme, the Coalition saw big potential to develop an alternative approach if Spain secured direct bank aid.

But Berlin refused to yield, saying the Spanish state must assume responsibility for repayments to the EFSF and ESM bailout funds.

Markets and the euro started the morning in positive territory, boosted by the European bailout for Spain's debt-stricken banks as European stocks moved to a 4-week high. 

However, this positivity has faded as investors and bondholders focused on Spain’s public debt and eyed the next risks in the euro zone's debt crisis.

Spain faces supervision by international lenders after a bailout for its banks agreed at the weekend, EU and German officials said today, contradicting prime minister Mariano Rajoy who had insisted the cash came without such strings.

Spanish and Italian bond yields rose sharply as doubts set in about the impact and terms of the deal, designed to avert a run on Spanish banks.

Cyprus, which is deeply exposed to Greece, strongly hinted today that it may apply for an international bailout before the end of this month, both for its banks and for the state.

It would be the fifth member of the 17-nation euro area to require assistance since the debt crisis erupted in Greece in late 2009.

The European Commission's top economic official, Olli Rehn, said the pre-emptive action to support Spain was "critical for calming down market turbulence in Europe and (ensuring) the proper functioning of the financial system in Spain".

Greece's general election next Sunday could rapidly change market sentiment if radical leftists hostile to the austerity terms of Athens' EU/IMF bailout outpoll the mainstream conservative and centre-left parties that signed the deal, or the vote ends in another deadlock.

Mr Rajoy said yesterday Madrid had scored a victory by securing aid from euro zone partners without having to submit to a full state rescue programme, saying Spain's rescue had "nothing to do" with the procedures imposed on Greece, Ireland and Portugal.

But EU competition commissioner Joaquin Almunia and German finance minister Wolfgang Schaeuble said that as in those other bailouts, the troika would oversee the financial assistance.

"Of course there will be conditions," Mr Almunia told Spain's Cadena Ser radio. "Whoever gives money never gives it away for free.

The IMF would be fully involved in monitoring Spain's programme even though it was not contributing funds, and banks that received aid must present a restructuring plan, he said.

Additional reporting: Reuters