Noonan confirms 'evolving' debate on imposing losses on senior bondholders

MINISTER FOR Finance Michael Noonan has confirmed that there is an “evolving” debate among European finance ministers to impose losses on senior bondholders in the euro zone.

He expressed confidence yesterday in Frankfurt that, as part of this debate, EU leaders will reach agreement in principle by October to lighten Ireland’s bailout burden.

“There aren’t bondholders in the Irish system now of any great value where burden-sharing would be a solution,” said Mr Noonan after 2½ hours of talks with European Central Bank president Mario Draghi.

Government officials said last night they were anxious to “explore avenues not open to explore” at the time of Ireland’s bailout. In a statement after the talks, an ECB spokesman said Mr Draghi “noted that the question of burden-sharing with senior bondholders is evolving at European level” and that the ECB president “expects that these developments will be reflected in the Irish adjustment programme”.

Mr Noonan declined to confirm media reports that Mr Draghi would not insist on senior bondholders in Spanish banks being shielded from losses. “There was a discussion at the euro group of senior bondholders sharing the burden, that discussion wasn’t conclusive and there were differences of opinion expressed on the night,” said Mr Noonan.

Taoiseach Enda Kenny said that “Europe has certainly realised that this country is serious about dealing with our public financial problems here”.

“While they’re challenging for our people, they want to assist us to get out of this programme as quickly as we can,” he said. “Irrespective of the outcome, what we want is the maximum benefit for our country in whatever form.”

Mr Noonan will meet IMF mission head Ajai Chopra this morning and EU economic and monetary affairs commissioner Olli Rehn in the coming weeks.

When Ireland sought its bailout in 2010, Mr Draghi’s predecessor, Jean-Claude Trichet, insisted on senior bondholders being shielded from losses. Ireland has pumped €64 billion into its banking system since then. A change in the ECB position on senior bondholders last year would have given the Government €4 billion to discuss in writedown negotiations with bondholders.

The shift in euro zone thinking on burden-sharing dates back to last month’s EU summit, where heads of state and government agreed that any assistance conditions extended to Spain would apply to others.

Ireland would like to reduce the burden of its sovereign debt due to taking on banking debt. Germany has said it will agree to breaking the connection between banking debt and sovereign debt after an EU banking regulator is in place.

With this likely to take months at least, Mr Noonan said the Government would be happy with an Irish agreement in principle and implementation a few months later.

“Doing the deal by October and announcing it would change markets’ attitude to Ireland and would ensure that we would get back into [financial] markets at a reasonable interest rate,” said Mr Noonan.

A senior European official described Ireland’s repayment of its bondholders yesterday as “water under the bridge”, but Irish analysts said the bondholder discussion had strengthened the Government’s hands in upcoming talks.

“We now have experience that not imposing losses puts sovereigns in a precarious position,” said Dermot O’Leary of Goodbody stockbrokers. “But there is still a danger in going the other way. It will need to be carefully done.”

Other analysts said agreement on burden-sharing was now only a matter of time and political compromise.