Bailout loan decision likely to be delayed
Draghi says use of ESM to recapitalise bonds directly a matter for eurogroup
A final decision on the adjustment of the maturities of Ireland and Portugal’s bailout loans may not be taken at next week’s meeting of euro zone finance ministers in Dublin, despite assurances that the deal would be signed off in April.
EU sources have told The Irish Times a final decision on the plan, which the Government hopes will significantly ease Ireland’s debt burden, could be delayed.
Finance ministers agreed in principle last month to back the proposal, which was first mooted in January. The plan would involved the adjustment of the maturity of Ireland and Portugal's bailout loans, which are drawn from the EFSF and EFSM funds.
Ireland is hoping that a reprofiling of the loan maturities will help to lower its borrowing requirements, and ease its exit from the bailout.
The Troika and euro working group have been working on the detail of the plan over the last few weeks, but delays, including the impact of the Cypriot crisis, has meant that the technical detail of the plan is still being agreed, although the final agenda for next week’s meetings has yet to be decided.
The request to adjust the bailout loan maturities is a key strand of Ireland's bid to alleviate its debt burden, following agreement on the promissory note arrangement in March.
While there is no imminent deadline by which a deal must be done, there had been widespread expectation that a final announcement would be made on the deal at the informal meeting of finance ministers which is taking place in Dublin as part of the Irish presidency of the European Council.
Finance ministers of the 17 euro zone countries are scheduled to meet next Friday morning, followed by a meeting of all 27 EU finance ministers, which is expected to continue on Saturday.
Yesterday European Central Bank president Mario Draghi said that the use of the European Stability Mechanism to directly recapitalise Irish banks is a decision “exclusively” for the euro group of finance ministers. However, he said the central bank would "view positively", any measure that cuts the link between sovereigns and banks. Mr Draghi was speaking following the ECB's governing council meeting in Frankfurt.
His guarded comments come a day after the IMF said that the recapitalisation of Ireland's banks by the European Stability Mechanism (ESM) "could play an invaluable role" in the recovery of the Irish economy. The view puts the IMF at odds with its troika partners where resistance to the use of the ESM to directly recapitalise banks, and particularly legacy assets, is growing. Last month euro group head Jeroen Dijsselbloem raised the prospect last month that the ESM may not be used to directly recapitalise banks.
In his first press appearance since the Cyprus bailout crisis, ECB president Mario Draghi said the original decision to bail-in depositors under €100,000 as part of the Cypriot rescue package was "not smart."
"The ECB had presented a proposal where no bail in of insured depositors was foreseen. All the proposals by commission and IMF. had the same feature, " Mr Draghi told a newsconference in Frankfurt. "Then it started a prolonged negotiation, the outcome of which was what you saw. That was not smart, to say the least, and was quickly corrected the day after in a Eurogroup teleconference."
Mr Draghi stressed that the Cypriot bailout, which included an unprecedented move to bail-in uninsured depositors and senior bondholders, was not a template for future bailouts.
"Let me stress that Cyprus is no template , I am absolutely sure that the chairman of the group had been misunderstood," he said, referring to Dutch finance minister Jeroen Dijsselbloem who suggested in an interview that the Cypriot bailout could be used as a model for future rescue packages.
Rather than a "turning-point" in the euro crisis, the Cypriot crisis underlined the need for the introduction of a banking resolution regime, Mr Draghi said said, pointing out that draft plans by the European Commission to introduce a European-wide standard for shutting down banks were already in train, though he suggested that the introduction of such a scheme would be introduced earlier than anticipated. “We would like to see these rules enter into force not in 2019, 2018, but way way earlier, like 2015,” he said.
Progressing plans for a Europe-wide banking resolution and deposit insurance scheme are key priorities for the Irish presidency of the European Council during the second half of its presidency.
The ECB president also dismissed the notion of Cyprus leaving the euro zone as “hypothetical”, arguing that commentators underestimated the amount of political capital that has been invested in the euro area.
“What was wrong with Cyprus’s economy doesn't stop being wrong if they are outside the euro,” he said. “So the fiscal budget stabilisation, consolidation, the restructuring of the banking system would be needed anyway, whether you are in or out. To be out doesn’t preserve the country from the need for action.”
The European Central Bank yesterday left interest rates unchanged at 0.75 per cent, though Mr Draghi's assertion that the ECB stood “ready to act”, prompted expectation among analysts that an interest rate cut could be imminent as early as next month.