Lessons should have been learned from Ireland, says Noonan

Fri, Jun 22, 2012, 01:00

IRISH REACTION:EUROPE SHOULD have learned lessons from Ireland’s banking debacle when agreeing an international bailout for Spain’s banks, Minister for Finance Michael Noonan said.

Spain’s push for direct European aid for its banks was rejected by Germany and its allies, dealing a blow to the Government’s campaign to cut the cost of Ireland’s bank rescue.

“I thought that the experience of Ireland should have been learned by the European authorities,” Mr Noonan told reporters as he arrived for talks with his euro zone counterparts in Luxembourg. “To recapitalise their banks and to transfer the accounting of it directly on the sovereign seemed to be an additional burden.”

Citing a recent letter from Taoiseach Enda Kenny to other EU leaders, Mr Noonan said it remains Ireland’s goal to separate banking debt from sovereign debt.

“To explore how that might be done technically would be important,” he said.

“I’ll be advancing that but there are no papers in circulation so far to show any real policy initiative in any direction but I presume a lot of that will be done informally.”

Asked what he had in mind, the Minister said direct funding to banks from the European Stability Mechanism fund without the money being reflected on the national balance sheet. “Of course it couldn’t be done without some involvement from the European Central Bank,” he added.

Although Mr Noonan said he would raise Ireland’s push to restructure the Anglo Irish Bank promissory note scheme in bilateral talks, Government sources say no breakthrough is imminent.

“I’m expecting a full discussion on the situation in Europe as a whole with quite a lot of focus on the emerging situation in Spain,” Mr Noonan. With Spain under exceptional investor pressure in the fortnight since the ministers agreed in principle to the bank bailout, Mr Noonan attributed market “jitters” to the lack of clarity over the country’s requirements.

“It hasn’t convinced the markets but I don’t think it’s right to say it’s not working. It’s too early to say whether it’s working or not and I think the bit that’s missing is that Spain hasn’t made its application,” he said of the Spanish plan.

“I think if Spain made an application on the weekend the agreement was made – if they quantified their needs – I think that might have eased the market concern. While there’s no request and while there is no certainty of the amount being requested, I think that makes the markets jittery.”

Spain’s borrowing costs have risen to record levels as Madrid prepares to initiate a formal application for aid for the banks. Mr Noonan said current Spanish bond yields are “very severe”, and this was a concern in light of the country’s large budget deficit.

“I think they estimate it themselves at 8.9 per cent of gross domestic product so funding the government is a big issue.”

He declined to comment on the push by the new Greek government for a two-year extension to its fiscal deadlines under the country’s second EU-IMF bailout.